India’s merchant power companies bore the brunt of an heavy monsoon that sharply reduced peak electricity demand and disrupted the seasonal uplift, resulting in a mixed September quarter for domestic power sector.
An early and prolonged monsoon dragged India’s peak demand down to about 200 GW from nearly 220 GW last year, cutting merchant volumes and realizations even as industrial activity also softened.
“For merchant-based companies, this quarter was weak. Merchant volumes were low, and realizations were down around 20%, leading to a negative impact,” said Rupesh Sankhe, Senior Analyst- Power Utilities, Capital Goods at Elara Capital. Sankhe added that the incentive income for utilities was modestly lower as generation slipped - in line with subdued demand - impacting earnings.
Nuvama Institutional Equities said the heavy monsoon softened power demand and industrial consumption, lowering PLFs for major utilities. “Electricity demand grew just about 3 percent year-on-year, leading to reduced PLFs for thermal utilities, weaker merchant prices, and curtailments for some renewable players,” the brokerage wrote in its Q2 review.
The GST changes announced in September too added to near-term disruption. Sankhe said the rate revision triggered inventory clearing and delayed purchases across EPC and module segments, even though the underlying orderbook stayed strong.
Mixed Trends
Merchant power producers faced headwinds due to the early onset of monsoon this year, which dampened peak demand and industrial consumption, and squeezed volumes and spot-market prices. However, regulated utilities such as NTPC, NHPC and Power Grid managed to hold steady, as regulated equity cushioned the impact of lower generation. Electricity regulator CERC allows pre-defined Return on Equity (RoE) on the portion of a regulated utilities’ equity investment in a project, which is called regulated equity.
State-owned hydropower companies benefited from improved hydrology, while transmission companies continued to deliver stable performance despite delays in new line execution due to right-of-way and labour constraints.
Ankit Soni, AVP Fundamental Research, Mirae Asset ShareKhan said that segments like thermal performed in-line with estimates. “NTPC was also a little slower on the renewable side but had good capacity additions and strong numbers on the thermal side, which actually offset weaker performance elsewhere. Coal India has been facing troughs and droughts around their mines, which has impacted their performance,” he said. Ankit Soni added that since the demand for power was lower, this impacted power prices. For instance, IEX had a huge volume, but realizations were lower, which affected merchant power companies.
Elara’s Rupesh Sankhe said most renewable energy companies too saw a stronger quarter - such as Suzlon, Waaree Energies, and Adani Green Energy - reporting stronger generation, improved margins, and better plant availability. ““Renewable energy companies performed better. Generation was stronger, margins improved, and companies like Tata Power delivered good numbers,” Sankhe said.
However, Soni noted that renewable execution this quarter was lower. “Tata Power executed only 208 megawatts, the lowest in the past one and a half years. Wind execution has been slower, and some projects have stalled due to declining power prices, particularly on the EPC side. These issues are expected to be resolved, and there will be a ramp-up of execution,” he said.
Power financiers like PFC and REC saw muted loan growth, with elevated repayments keeping net disbursements subdued, though asset quality remained stable.
Valuations
On valuations, regulated utilities such as NTPC (1.73x P/B) and Power Grid (2.76x P/B) continue to trade at reasonable multiples, while merchant players like Adani Power (5.48x P/B) and Tata Power (3.48x P/B) at moderate levels. Among renewable companies, Suzlon (12.78x P/B), Waaree Energies (10.06x P/B), and Adani Green Energy (14.24x P/B) trade at significantly higher multiples.
Sankhe said, “Valuations for regulated players are around 1.4-1.7x book value, and growth visibility is strong due to capacity additions over the next four to five years. Private merchant players trade at higher multiples but need demand to rise meaningfully to justify them.”
On re-rating, Soni said it may not be substantial, but thermal additions of 80-100 GW by 2028-29 are key. “Thermal execution is picking up after a low base. Tata Power is executing both renewables and thermal projects, justifying a valuation re-approach, especially for EPCs.”
Optimism for the Second Half
Despite the quarter’s volatility, the medium-term outlook remains healthy. Utilities have upgraded their renewable, storage, and hybrid targets in 2030, with NTPC exploring nuclear capacity expansion. Sankhe said that Discoms’ financials have improved and “TSA agreements for about 40 GW of renewable projects should begin moving,” supporting fresh T&D capex. Wind PLFs were also stronger this quarter due to favourable weather conditions.
Analysts now believe that the second half of the year will be better. Tata Power plans to add around 1.3 GW in FY26, and Power Grid has said it will do around Rs 20,000 crore worth of project capitalization. However, execution and ramp-up will need to be monitored, but this should drive growth, believes Soni. He added that on merchant power, the likes of Adani Power have been facing some pressure on realizations due to declining international coal prices, but it may not have any major negative impact, and H2 should be better.
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