Brokerage and research firm CLSA has listed down three power sector stocks that not only could gain from the multi cap fund rule but also from the power sector reforms.
Headline indices have been trading in the negative territory for five consecutive sessions.
With the midcap and small cap stocks getting a nudge from the market regulator’s decision, brokerage firms have been actively tracking such stocks to spot opportunities to invest in. Market participants have predicted inflows of close to Rs 40,000 crore in multi cap mutual funds follow SEBI’s guidelines and invest 25% of their assets in midcap and small caps each. Amidst this, global brokerage and research firm CLSA has listed down three power sector stocks that not only could gain from the multi cap fund rule but also from the power sector reforms that include a blend of liquidity injections and structural measures to fix weak discoms.
Share price of Tata Power has surged 107% from their March lows to now trade at Rs 56.6 apiece now. “After guiding for 42% on-year debt reduction through the divestiture of $2.5 billion in assets in fiscal year 2021, it announced corporate restructuring. This will unleash huge tax breaks,” the CLSA report said. The brokerage firm adds that Tata Power is on track to monetise its 2.6GW in RE assets through a private InvIT. The moving of assets to the InvIT could allow Tata Power to churn capital and reduce net debt by 39%.
CLSA sees JSW Energy as an emerging renewable energy play and also a strong bet on investors banking on the ESG theme. The report says that JSW Energy withdrew from the acquisition of thermal assets to allocate cash to scaling-up renewables. From having 100% thermal concentration when it came to fuel mix in financial year 2015, last fiscal the company had 31% hydro power share. By 2022 it aims to have renewable energy contribute 15% to its fuel mix. 95% of its Ebitda now comes from long-term PPA sales. “The company is set to win 810MW (18% capacity) of SECI’s 2.5GW wind tender. This will help JSW Energy to deliver its plan to double its capacity via RE,” CLSA said. With a de-leveraged balance sheet the company offers inexpensive valuations.
Share price of Calcutta Electric Supply Corporation (CESC) has surged 76% from March lows to now trade at Rs 667 per share. CESC has managed to trim losses at plants like Chandrapur by 89% in the previous fiscal with the help of long-term PPAs. “We see CESC as a key power reform play as India opens the distribution sector starting with the union territories. The stock is trading at 20% discount to SOTP,” CLSA said.
The brokerage firm said that their analysis of the top 10 multi-cap funds, which make up 83% of the total, shows NTPC and Power Grid make up only a small weight (2%) of the total Asset Under Management. Further it added that NTPC and Power Grid might witness selling pressure if multicap funds realign their weights. Among other power sector stocks, the brokerage firm has a ‘Buy’ call on Power Grid, NTPC, and a ‘Sell’ call on Adani Transmission.
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