It is hard to come across PSU stocks where an overwhelming majority of analysts have only good things to say. Power generation major NTPC is in that sweet spot right now. At present, NTPC has 24 'Buy' calls from analysts against its name and just 1 'Sell' call.
On Moneycontrol's Analyst Call Tracker, NTPC is right now in a rarified zone of companies displaying 'Maximum Optimism.' The list includes companies with ‘buy’ ratings as well as those with the highest number of upgrades in ratings.
But what has made NTPC such a big hit with the Street?
At the heart of the frenzy is a positive view on the country’s power sector, thanks to a growing demand for power, thrust on renewable energy and regulations that helped in improving the financial health of power distribution companies (DISCOMs)
In July, Goldman Sachs initiated a buy rating on NTPC with a target price of Rs 265 indicating a potential upside of 42 percent.
The brokerage firm outlined two pivotal themes shaping India's power sector and influencing NTPC's growth prospects.
First, the economics-led renewable (RE) transition gaining momentum, driven by the viability of round-the-clock renewables. This transformative approach offers traditional utilities like NTPC the opportunity to unlock a superior business model, leading to higher returns and access to a broader customer base.
Second, there is a concurrent onset of a peak power deficit cycle, attributed to a consistent rise in peak demand, which is met with insufficient 'firm' capacity addition. In this context, NTPC's strategic advantage of low-cost debt serves as a robust moat, positioning the company as a frontrunner in this transition.
Robust capacity addition pipeline
As of June 30, NTPC’s commercial capacity stood at 57,038MW on a standalone basis and 73,024MW at the group level. NTPC has planned to add 16GW of renewable and 10GW of conventional capacity in the next three years. Elara Capital believes that higher capital expenditure for the renewable portfolio may bolster growth for NTPC.
Transition to green energy
JM Financial finds that NTPC is best positioned for success in India's energy transition, much like its successful global peers in the 'Green & Grey' sectors. It is poised for leadership in India’s renewables market due to its visible pipeline of 16.7GW RE projects, competitive advantage in debt cost at around 6 percent (versus 8 percent for other industry players), and diversity in initiatives across the RE value chain, including hydrogen. Several RE projects are in the pipeline, encompassing a mix of ground-mounted solar, floating solar, wind and some small hydrogen projects.
Tapping into the C&I consumer market
NTPC also intends to provide round-the-clock electricity to the commercial and industrial (C&I) segment. It has formed joint ventures with Indian Oil Corporation Limited and entered into MoUs/bilateral agreements with Greenko, GACL, REMCL and HPCL among others for the supply of RE power on a round-the-clock basis to meet their requirements. The C&I segment is expected to constitute 10GW of the total 20GW of RE projects in the pipeline.
Nuclear power
NTPC has forayed into the nuclear power sector through a joint venture with NPCIL. The company is actively pursuing two projects with the aim of adding 2GW of nuclear capacity by FY32E. An additional 4.2GW of projects are under consideration, including the exploration of Small Modular Reactor technology in collaboration with BARC.
ICICI Securities underscores NTPC's resilience in the power sector, weathering recent market fluctuations. The stock has a 1-year return of 40.35 percent. NTPC has sustained trading above December 2009 highs, a breakout from a decade-long consolidation, and upward momentum within a rising channel all suggesting an intact uptrend with the potential for further gains in the coming months. This trend further solidifies NTPC's inherent strength and trajectory.
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