3 utility stocks with potential to jump as much as 78% to help investors dodge Covid-19 power shock

By: |
May 4, 2020 5:45 PM

With the majority of the population asked to stay indoor, power demand across the country tanked over 8% in March and was expected to fall another 32% in April.

electricity loss, power loss, transmission loss, AT&C loss, power sector, power demand, PRAAPTI, UDAYAccording to the power ministry, the total electricity consumption stood at 85.05 billion units in April this year, down from 110.11 billion units in the corresponding month last year.

With the majority of the population asked to stay indoor, power demand across the country tanked over 8% in March and was expected to fall another 32% in April. According to the power ministry, the total electricity consumption stood at 85.05 billion units in April this year, down from 110.11 billion units in the corresponding month last year. In the white-wash that saw S&P BSE Sensex fall over 2,000 points BSE Utilities index went down by 3%. Now, with industries being given the go-ahead, though, with certain riders, power demand is expected to surge in the coming months aided by the industry and the usual heavy demand in summers. Brokerage firms Emkay Global and JM Financial are both bullish on three stocks in the sector.

 

NTPC

Target Price: Emkay Global – Rs 120 | JM Financial – Rs 160

NTPC recorded a 4.1% decline in power generation by coal, 2.5% from gas-based plants, and 32% from hydro, all on-year basis. Emkay Global is bullish on the scrip as it remains largely immune to low power offtake by discoms as fixed costs are recoverable. “ The MoP’s direction to discoms for the payment of availability-based fixed charges has provided significant relief to regulated entities such as NTPC,” said Emkay Global. JM Financial is not letting go of NTPC even if a temporary cut in ROE is announced to help discoms. “Our analysis shows a 5% cut to profits for a 1% RoE cut for 12 months for both NTPC and PGCIL – while a cut (if any) would be restricted to the lockdown period,” JM said. NTPC ended Monday’s trading session down at Rs 91 per share. A 75% upside would be needed to take it to levels predicted by JM Financial.

 

Power Grid Corporation

Target Price: Emkay Global – Rs 220 | JM Financial – Rs 200

Brokerage firm JM Financial has upgraded Power Grid to a buy rating and expects the stock to jump without any change in the stock’s core fundamentals. “Despite a slower capex driven deceleration in profit growth, we find PGCIL (Power Grid) earnings to be most resilient to demand slowdown. Additionally, PGCIL does not have any overhangs of ESG or threat of renewables given all power has to be transmitted,” it said. Emkay Global’s reason for recommending investors buy Power Grid is how the business is run. Power Grid operates on a risk-averse regulatory business environment and earns a fixed return on invested project equities, making it immune to the drop in demand. The scrip slipped 1.8% on Monday to start the week’s trading down at Rs 159 per share.

 

JSW Energy

Target Price: Emkay Global – Rs 73 | JM Financial – Rs 60

According to estimates by analysts at Emkay Global the EPS is expected to go up to Rs 6 in FY21, while P/E ratio might fall from 8.2 in the previous fiscal to 7.4 in the current fiscal year.  JSW Energy’s open capacity of 800 MW is witnessing significant pressure of low exchange prices rendering much of this capacity to lay unutilised in the April-June quarter. “We adjust for this stress in our FY21 estimates, however, find the merchant mix reducing in next 1-2 years with addition of PPA capacities (through acquisition) which limits the risk of merchant earnings in future. Stock remains inexpensive at 0.5x FY22 BV,” JM Financial said. From current levels, the stock will have to jump 78% to touch the target price pegged by Emkay Global.

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