India’s power sector delivered a mixed quarter of earnings, with utilities such as NTPC and Tata Power posting strong Q4FY25, while merchant-heavy players - selling power in the open market - like JSW Energy and Torrent Power remained under pressure due to muted peak demand and falling exchange tariffs, a divergence also reflecting in the valuations within the pack.
Peak demand in the March quarter failed to match last year’s highs, dragging merchant realizations lower. "Power demand was low this time versus last year. Peak demand last year was around 250 GW; this time it was around 225 GW," said Rupesh Sankhe, analyst at Elara Securities. He said exchange prices fell 15-20% on-year, hitting merchant operators’ margins.
The weighted average Market Clearing Price (MCP) dropped 11% YoY to Rs 4.38/kWh in February, while volumes rose to 5,409 GWh. The price-volume mismatch squeezed earnings of power producers exposed to short-term markets. JSW Energy, with about 10% of its capacity in merchant trade, saw margin pressure, while Torrent Power’s EOX sales underperformed despite its long-term PPAs.
Regulated Players Hold Steady
Long-term Power Purchase Agreements (PPAs) provided a buffer for public utilities. NTPC posted a Q4FY25 profit of Rs 7,897 crore on a revenue of Rs 49,833 crore, while Tata Power saw strength in its solar and distribution segments. “Numbers were good for regulated companies like NTPC, NHPC, and Tata Power,” said Sankhe.
Coal-based plant load factors (PLFs) averaged 74% in February, up from 71% a year earlier. In contrast, gas-based plants operated at just 15%, underscoring a lack of demand for costlier fuels.
Renewables See Momentum Amid Delays
Despite record capacity additions, renewable projects were hindered by land acquisition and grid connectivity issues. India added 20.7 GW of solar and 2.7 GW of wind capacity through February, but monthly additions in February were tepid at 2,236 MW and 223 MW, respectively.
“Some projects were delayed by 3-6 months,” said Sankhe. “Discoms held back PPAs due to low demand, further dampening project execution.”
Still, long-term capacity addition targets remain ambitious. NTPC Green Energy plans to invest Rs 1 lakh crore by FY27 to scale green capacity to 19 GW, Adani Power aims to invest Rs 1.2 lakh crore by 2030. JSW Energy and Tata Power too have raised their renewable addition targets for 2030.
“In Q4FY25, renewable generation rose 25% YoY, outpacing thermal’s 2% growth,” said Divyam Mour, analyst at SAMCO Securities. “The sector is nearly halfway to its 500 GW renewable goal.”
Valuation Divergence
Valuations across the sector showed divergence during the March quarter. Utility players like NTPC (P/B 1.75x, down from a peak of 2.48x) and Adani Power (3.11x, vs peak 4.10x) have corrected meaningfully from their 52-week high and now trade at more reasonable levels. Adani Green Energy has seen a sharper contraction, trading at a P/B of 8.97x, down from its peak of 22.17x.
In contrast, power-focussed capital goods companies continue to command premium valuations, despite some recent corrections. For example, CG Power trades at a P/B of 75.42x, down from a peak of 103.77x, while ABB India is at 19.53x, below its peak of 24.82x.
“We’ve seen a 15-20% correction in the last few months,” said Sankhe who believes valuation concern is not very high anymore for most utility players. Sankhe remains an outlier, as most analysts continue to believe that valuations in the sector remain on the higher side. SAMCO’s Mour said, “Renewable-heavy names like NTPC Green (5.04x against 5,84x) and Waaree Energies (7.96x against peak of 6.24x) are richly valued. A Trump-led rollback on renewables in the US could add uncertainty. Stock picking is key.”
Power Financiers Deliver Growth
Power financiers such as REC and PFC reported steady growth with strong disbursements and healthy loan books, supported by robust demand from renewables.
“Net interest margins stayed stable. Capital adequacy and liquidity remain strong, positioning financiers to support sectoral capex,” said Mour.
Elara Securities’ BFSI Analyst Shweta Daptardar suggests that REC and Power Finance Corporation (PFC) continue to deliver resilient financial performance, though growth momentum is easing. She points out that both firms benefit from low-cost funding, allowing them to sustain healthy net interest margins with REC at 3.6-3.75% and PFC at 3.6%. Despite robust profitability, loan growth for REC is moderating around 12%, while PFC is guiding for 10–11%,” she said. Compared to most banking stocks, she notes that while valuations of power financiers is on par, they perform better in terms of ROE. The only exception, she says is SBI which has a higher ROE.
Daptardar said asset quality has improved significantly, with gross NPAs trending lower. However, re-rating triggers appear limited hence valuations remain attractive, with REC trading at 0.9x and PFC at 0.7x FY27 estimated book value.
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