Even as the share of renewable energy has gone up, the importance of non-renewable energy resources, especially thermal power plants has not vanished. They have become even more important as India’s energy needs rise and they provide cheap power.
So, it is not surprising that India is planning to add another 25 gigawatts (GW) of coal power under the new National Electricity Plan to meet the total demand effectively by 2030. Thus, analysts expect 5-6 GW per year to be tendered over the next four years.
"India’s power grid needs a simple solution like thermal power to ensure its reliability, which is currently challenged by the increasingly varying availability of renewable electricity,” said Mohit Kumar, a Research Analyst at ICICI Securities. “While storage of renewable energy is a long-term solution, it is uneconomical as of now and not scalable for grid operations.”
He believes one of the biggest and natural beneficiaries of the government’s initiative is Bharat Heavy Electricals Limited (BHEL), which is in the business of making power plants and equipment. The stock is ICICI Securities’ top pick among industrials.
The market of constructing a thermal power plant in India is a duopoly with either Larsen & Toubro or BHEL bidding for tenders. The sector sees limited interest from international players.
Analysts expect thermal awarding (pipeline of 6GW) to pick up in FY24 and another 9GW beyond thereafter in addition to over 8GW of Flue Gas Desulfurization (FGD) awards possible in the current fiscal.
Kumar said, the company has seen improvement on orders front with slow moving orders getting on track and new orders flowing in. BHEL has already received Rs 12,000 crore worth of orders from Indian Railways for Vande Bharat and is also the leading bidder in an 800 MW EPC order and a turbine order for hydro. As a result, the value of total order inflow in FY24 YTD is Rs 21,000 crore.
BHEL has also developed significant moat in defence orders and is the sole supplier of SRGM Naval guns. In FY23, it won an order to supply 20 SRGM guns worth Rs3,800 crore and expects a similar-size order in FY24 as well.
ICICI Securities has a 'buy' call on the stock with target at Rs 110, meaning a potential upside of about 30 percent. The stock on June 15 traded up about a percent at Rs 84.80 on BSE.
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