Smart meter play triggers smart rally in select power stocks

“As of now, they have just installed close to 1.5 crore smart meters, so the opportunity is plenty. Even at a cost of Rs 6,000-7,000 per smart meter, the market size is close to 1.5 lakh crore,” he adds, while highlighting the fact that the sector has received significant financial incentives, such as central government subsidies, as well.

“Each state faces significant T&D (transmission and distribution) losses, and there's a regulatory push to reduce this. The SMNP initiative represents major capital expenditure moving forward,” he adds.

Currently, the SMNP rollout is being executed in phases, with an initial focus on high-loss areas and regions equipped with the necessary infrastructure. Projects have already been implemented in states such as Uttar Pradesh, Haryana, and Bihar.

Companies like Tata Power, Genus Power, and HPL Electric & Power have, over the past year, won orders for implementing smart meters, while stocks in the segment have given double-digit and multi-bagger returns on the back of growing power demand.

Tata Power has gained 98 percent, while Genus Power is up 237 percent. HPL has gained 318 percent, while ABB and Schneider Electric have moved up 102 percent and around 192 percent, respectively, over the last one year.

More importantly, despite the high potential for revenue growth, competition remains limited due to the specialised nature of smart meter manufacturing.

Also read : Power play: Are global stocks a better bet for Indian investors?

Analysts believe that the current beneficiaries will feature among the larger players going ahead, as making these meters involves complex technological advancement and smaller players may take some time to develop this technology and attain scale.

According to Sankhe, the large, existing players can expand their capacity, ensuring revenue growth.

“Even if the current revenue from smart metering is less than 10 percent, the potential is significant. With limited supply, these companies will maintain healthy margins,” he explains.

Another play in the smart metering segment could be financing entities like REC (Rural Electrification Corporation) and PFC (Power Finance Corporation), which act as nodal agencies for the scheme and play an important role in planning, implementation, and monitoring.

Sagar Lele of Rupeeting, a financial advisory firm, however, believes that while there are growth opportunities, it may not be enough for an investment thesis.

“While smart meters are an essential theme, they should not dominate an investment thesis. The broader energy sector, particularly with infrastructure enhancements and grid automation, offers more significant and immediate opportunities," he says.

Also read : Power not just a domestic theme; data centres, AI to drive next wave of growth

Given the cyclicality of the segment and inherent risks, especially for discoms, a more diversified investment strategy is advisable, says Lele, while citing examples of companies like NTPC and Tata Power, which offer a more balanced approach due to their mix of renewable energy and distribution assets.

Alchemy Capital's Head-Quant and Portfolio Manager Alok Agarwal concurs. While he remains extremely bullish on the power sector, he, like Lele, sees other opportunities like renewables, etc., within the segment as bigger and better plays for now.
Sankhe, however, remains optimistic even as valuations appear high, and attributes the current valuations to the anticipated, sustainable high growth over the next 10-12 years.

“This growth is not just for the initial deployment, but also for the replacement phase. Companies are poised to benefit significantly from this long-term opportunity,” he explains.

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