Macquarie sees strong growth for India's power sector; bullish on Power Grid, NTPC, REC, PFC

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Power Grid, REC, PFC and NTPC all bagged bullish ratings from the brokerage.

Macquarie initiated coverage on REC with an ‘outperform’ call, assigning a target price of Rs 660 per share.

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International brokerage Macquarie initiated coverage on a series of power players and power firms, indicating a bullishness on India’s strengthening power theme. Power Grid, REC, PFC and NTPC all bagged bullish ratings from the brokerage as many experts believe the domestic power sector is poised for a multi-decade growth story, with strong earnings prospects.

Power Grid

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The brokerage kicked off coverage on Power Grid with an ‘outperform’ rating, assigning a price target of Rs 380 per share. A bet on Power Grid helps investors capitalise on the capex cycle and is a proxy play on renewables growth, said the brokerage.

After a period of slowdown, Power Grid is set to benefit from a sharp pick-up in transmission capex. A sizeable TAM rebound allays concerns from competition on returns on incremental capital invested in the transmission business. The brokerage prefers Power Grid as a bet over NTPC.

NTPC

Macquarie initiated coverage on NTPC with an outperform call as well, issuing a target price of Rs 475 per share. The firm is a play on energy security and transition, it benefits from both themes.

The brokerage said it offers an attractive mix of regulated capex and renewables exposure. The predominantly brownfield nature of its upcoming thermal capacity addition reduces execution slippage risks. Nuclear could also be a longer-term driver.

The stock has had a great run over the past three years, however, the brokerage is impressed by its solid visibility going forward.

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REC

Macquarie initiated coverage on REC with an ‘outperform’ call, assigning a target price of Rs 660 per share. The brokerage is bullish on the player, especially since the regulatory overhaul owing to cyclical power shortage has reduced credit risk and boost growth for power financiers.

Despite the recent rally in REC’s share price, the brokerage expects asset resolutions, lower slippages, and increasing renewables mix to drive a re-rating of the stock. According to Macquarie, the current valuations do not factor in lower credit risk compared to the previous cycle.

PFC

This power financier also got an ‘outperform’ tag from the brokerage, with a price target of Rs 630 per share. Macquarie said that the PFC is a cyclical play with cheap valuations. Similar to REC, the regulatory overhaul owing to cyclical power shortage has reduced credit risk and boost growth for power financiers.

While PFC shares also saw a sharp rally, Macquarie had the same rationale as it did for REC: The stock warrants a re-rating given its asset resolutions, lower slippages and increasing renewables mix. However, the brokerage added that the risk-reward for PFC is more favourable than for REC.

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