Why ICICI Securities is bullish on power and capital goods stocks

The Central Electricity Authority recently released the Draft National Electricity Plan, which proposes nearly 466 GW of net capacity addition, including 43 GW of coal-based addition, at a capex of Rs 31.5 lakh crore over the next decade. Following the development, domestic brokerage ICICI Securities made bullish bets on the power and capital goods stocks. The brokerage is bullish on NTPC, Coal India, NHPC, BHEL and L&T.

Shares of NTPC, Coal India, NHPC, BHEL and L&T advanced up to 2.42 per cent in Wednesday’s trade. NTPC was among the top gainers as the stock surged 2.42 per cent to Rs 271.40.

India had made a commitment to generate 500 GW of non-fossil-fuel capacity by FY30, which endorses our thesis of coal continuing to be a reliable and major source of energy for India over the next two decades. Thus, the approach continues to be phasing down instead of phasing out of coal, with emphasis on replacement by more efficient plants leading to a reduction in average emissions, said ICICI Securities.

The brokerage believes the majority of the coal-based capacity addition over the next decade will be done by PSUs led by NTPC. “Coal India, being the largest coal supplier, will continue to be the major beneficiary on the back of coal demand growth.”

“We believe BHEL and L&T are the best-placed players to cater to the upcoming capex in thermal generation space. In the hydro space, capacity addition will be led by NHPC, with 6 GW under construction and 8 GW under clearance. Players including Tata Power and JSW Energy, which have large RE targets, will also be among the key beneficiaries,” it added.

According to Trendlyne data, the highest target for NTPC goes up to Rs 220, and the average estimate of Rs 189 shows an upside potential of around 10.4 per cent from current prices. Out of 22 analysts covering the stock, only one has a hold rating, while 21 have buy and strong buy calls. However, the highest target for Coal India goes up to Rs 306, and the average estimate of Rs 243.1 shows an upside potential of around 4.4 per cent from current prices. Out of 24 analysts covering the stock, only 4 have sell and strong sell ratings, while 18 have buy and strong buy ratings.

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