Power stocks in focus; Tata Power m-cap hits Rs 1 trn, Torrent surges 11%

In the past one month, the S&P BSE Power index has surged 27 per cent, against 7 per cent rise in the S&P BSE Sensex.

Shares of power companies continued their upward movement with the S&P BSE Power index surging 2.5 per cent and hitting a new high of 5,756.78 in Thursday’s intra-day in an otherwise dul market amid expectations of strong operational performance on the back healthy power demand due to improvement in economic activities.

At 02:50 PM; S&P BSE Power index, the second most gainer among sectoral indices, was up 2.5 per cent, as compared to 0.23 per cent decline in the S&P BSE Sensex. In the past one month, the power index has surged 27 per cent, against 7 per cent rise in the benchmark index.

Among individual stocks, Tata Power hit a new high of Rs 332, as they surged 12 per cent on back of three-fold jump in trading volumes owing to positive outlook. A sharp up move in the stock has seen, the market capitalisation of Tata Power hit Rs 1 trillion mark for the first-time ever today. Currently, Tata Power market cap stands at Rs 1.05 trillion, the BSE data shows.

Torrent Power too hit a new high of Rs 1,045.35, on rallying 11 per cent in intra-day trade today. NHPC, JSW Energy, Adani Green Energy, Adani Energy Solutions and Power Grid Corporation were among other gainers from the Power index - up in the range of 3 per cent to 6 per cent on the BSE.

The government's focus to attain ‘Power for all’ has accelerated capacity addition in the country along with expansion and strengthening of power transmission and distribution networks. Demand for electricity in India is expected to grow at a sustained pace given the government’s massive push towards ‘Make-In-India’, PLI (Production Linked Incentive) Scheme, increasing industrialization, improving incomes and standards of living, and push for increasing the penetration of electric vehicles in the transportation sector, among others.

Meanwhile, CRISIL Ratings expects Tata Power’s consolidated adjusted earnings before interest, tax, depreciation and amortization (Ebitda) to be more than Rs 12,000 crore each in fiscals 2024 and 2025 (was around Rs 11,500 crore in fiscal 2023 and around Rs 9,600 crore in fiscal 2022). Adjusted Ebitda was reported at Rs 6,694 crore in the first half of fiscal 2024.

Last month, CRISIL Ratings revised its outlook on the long-term bank facilities and non convertible debentures of the Tata Power to ‘Positive’ from ‘Stable’ while reaffirming its rating at ‘CRISIL AA’.

The revision in outlook reflects the possibility of better-than-expected business risk profile if the improvement in operating profitability in fiscal 2024, across power generation and distribution business, sustains along with a continuing healthy financial performance with consolidated net leverage (ratio of net debt to adjusted Ebitda) remaining within rating threshold, the rating agency said in its rationale.

Going forward, increased scale of operations, improving operating efficiency and steady cash creation in thermal generation and regulated business is expected to support strong operating cash accrual. This would be despite an expected reduction in earnings from coal mining business, amid lower coal prices this fiscal. Furthermore, increasing the level of integration in the renewable energy (RE) business by setting up in-house module manufacturing and engineering, procurement and construction (EPC) business lends support.