Power stocks to buy: Tata Power, JSW Energy gets ‘buy’ tag from Nomura, up to 22% upside seen | Stock Market News

In a recent report on the power sector, Nomura has initiated coverage on Tata Power and JSW Energy, giving them a ‘buy’ rating and setting target prices of ₹560 and ₹885, respectively. The brokerage is of the opinion that India’s power sector offers substantial growth opportunities and it sees green energy as the new gold as a result of a major shift from conventional to sustainable energy sources.

Tata Power and JSW Energy are expected to achieve a 16% and 38% compound annual growth rate (CAGR) in earnings before interest, taxes, depreciation, and amortization (EBITDA) from FY24 to 27F due to increasing capacities.

Nomura anticipates that India’s energy demand growth will be more robust in the next five years compared to the past, presenting a significant opportunity for value creation. Describing the sector as having a long runway for growth would be an understatement, according to the global brokerage. Significant opportunities are seen by the brokerage across the complete energy value chain, including solar module manufacturing, renewable energy (RE) generation, and transmission and distribution.

The global brokerage indicated a significant uptick in the expansion of renewables, resulting in an expanding proportion of renewables in India’s energy combination. It is anticipated that solar and wind power will meet around 75% of the additional demand by FY25F. In FY24, renewables accounted for 33.5% of India’s electricity provision, and it is predicted to rise to 35% in FY25F, fuelled by a 23% annual increase in solar power. The brokerage expects the increasing trajectory of renewables to persist and gather momentum.

“We expect three new themes to contribute to incremental demand: (1) strong capacity additions for data centres, (2) rising penetration from electric vehicles (EV), and (3) green hydrogen. We envisage green hydrogen will likely be the largest of these themes and can drive demand of 150-300TWh,” the brokerage said.

Power stocks to buy

Tata Power

As the biggest integrated power firm in India, Tata Power is well-positioned to profit from the nation’s energy revolution, according to Nomura. With a strong 5.5GW pipeline and plans for further integration, the business would have a 4.5GW RE portfolio, which is expected to quadruple. It also has a sizable order book of ₹157 billion for EPCs, given its recent venture into the production of solar PV cells and modules.The business has also made great progress in building an EV charging network with more than 5,500 contact points, and it is experimenting with pumped storage with an initial capacity of 2.8GW.

“With a goal to source 70% of its generation through renewables by FY30 and phase out thermal generation by 2045, Tata Power is well-placed to capitalise on favourable government policies promoting RE,” said Nomura.

On Wednesday’s session, Tata Power share price ended about 1% higher at ₹460.90 apiece on BSE.

JSW Energy

Brokerage claims that JSW Energy, one of India’s top independent power producers (IPPs), plans to use RE to generate 20GW of capacity by FY30. As of right now, the firm has 7.54GW of installed capacity, 8.3GW of renewable energy in the pipeline, and 2.3GW of capacity under construction.

The business has LT Power Purchase Agreement (PPAs)attached to around 92% of its installed capacity, which allows for excellent profits visibility. Through FY24-FY27F, favourable RE bid victories and robust merchant market tariffs will significantly improve operational and cash flow visibility. Additionally, the firm has ventured into energy storage solutions, where our estimate predicts JSW Energy will earn almost 95% of the business’s EBITDA margin.

On Wednesday’s session, JSW Energy share price ended about 1% higher at ₹729.95 apiece on BSE.

Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decision.