Nomura has recently issued a comprehensive report on the Indian power sector, initiating coverage on two significant players: Tata Power and JSW Energy. Both companies have been given a ‘buy’ rating, with target prices set at ₹560 for Tata Power and ₹885 for JSW Energy. According to Nomura, the power sector in India is poised for substantial growth, driven by a dramatic shift towards sustainable energy sources, positioning green energy as the new ‘gold’.
Projected growth in earnings before interest, taxes, depreciation, and amortization (EBITDA) is quite promising, with Tata Power expected to achieve a compound annual growth rate (CAGR) of 16%, while JSW Energy is anticipated to experience a CAGR of 38% from FY24 to FY27. This growth trajectory is largely attributed to their increasing generation capacities and strategic initiatives.
Nomura anticipates India’s energy demand will witness robust growth in the next five years, surpassing that of previous years. This presents a formidable opportunity for value creation within the sector. The brokerage describes the current scenario in the power sector as having a ‘long runway for growth’, highlighting numerous opportunities across the energy value chain that encompasses solar module manufacturing, renewable energy generation, and the transmission and distribution network.
The report highlights a significant increase in the expansion of renewable energy in India, forecasting that solar and wind power will fulfill nearly 75% of the additional energy demand by FY25. Currently, renewables account for 33.5% of India’s electricity supply and are predicted to rise to 35% in FY25, driven by an impressive annual growth rate of 23% in solar energy production. The trend toward renewable energy is expected to sustain momentum as the sector expands.
Nomura identifies three emerging themes anticipated to contribute to incremental energy demand: (1) strong capacity additions for data centres, (2) increased integration of electric vehicles (EVs), and (3) green hydrogen initiatives. Among these themes, green hydrogen is projected to be the most impactful, with an estimated demand contribution of 150-300 TWh.
Tata Power: A Leader in India’s Energy Transition
Tata Power is recognized as India’s largest integrated power company and is ideally situated to capitalize on the ongoing energy revolution. The company boasts a robust pipeline of 5.5 GW and plans to amplify its renewable energy (RE) portfolio to 4.5 GW, aiming to quadruple its capacity. Tata Power also has an impressive order book worth ₹157 billion for engineering, procurement, and construction (EPC) projects, and it is making significant strides in establishing an extensive EV charging network, currently exceeding 5,500 contact points.
According to Nomura, Tata Power aims to meet 70% of its energy generation from renewable sources by FY30 and plans to phase out thermal generation by 2045, positioning itself to benefit from favorable government policies supporting renewable energy initiatives.
As of the last trading session, Tata Power’s share price closed approximately 1% higher at ₹460.90 apiece on the Bombay Stock Exchange.
JSW Energy: Pioneering Growth in Renewable Capacity
JSW Energy, recognized as one of India’s leading independent power producers, has ambitious plans to generate 20 GW of renewable energy capacity by FY30. Currently, the company operates with 7.54 GW of installed capacity, has 8.3 GW of renewable energy projects in the pipeline, and 2.3 GW under construction.
Notably, JSW Energy holds Power Purchase Agreements (PPAs) for around 92% of its installed capacity, guaranteeing robust profits visibility. The company anticipates that favorable bidding outcomes in renewable energy and strong merchant market tariffs will significantly enhance both operational performance and cash flow from FY24 to FY27. Furthermore, JSW Energy is exploring energy storage solutions, which is projected to contribute approximately 95% to the company’s EBITDA margin.
At the close of the latest trading session, JSW Energy’s share price also saw an increase of about 1%, closing at ₹729.95 per share on the Bombay Stock Exchange.
Disclaimer: The insights and recommendations presented in this article reflect the perspectives of various analysts and brokerage firms, and do not represent the views of Mint. Investors are encouraged to consult certified financial experts prior to making any investment decisions.
