3 Power sector stocks that can impress you in Q2 earnings season

As the economic activities in the country have picked up after the Covid-led disruption, the power sector is in strong demand and against this backdrop, HDFC Securities expects the power industry to report healthy earnings growth in 2QFY23. The brokerage sees the industry to log 19.4% Y-o-Y growth in earnings given the continued spur in power demand as well as merchant rates. This is even as demand growth softened in the Q2 period to around 5% YoY in comparison to 17% Y-o-Y growth in the preceding quarter.

Brokerage also cited that coal inventory at power facilities have also improved thus bringing power deficit to normalised levels of 0.3% in Q2 versus 1% QoQ. Also, on a sequential basis, merchant rates were slashed 29% during the period. “Revenue for our coverage universe is likely to improve by 23.4% YoY,” added the brokerage firm.

Amid an optimistic outlook for the sector, the brokerage sees 3 power stocks – CESC, NHPC and NTPC – to impress with better earnings in the Q2 period.

CESC
HDFC Securities sees the standalone revenue of the power generation and distribution company to log 11.1% Y-o-Y growth to Rs 23billion, given an around 7-8% increase in demand across its Kolkata licence area. “We expect PAT to remain largely flat on a YoY basis at Rs2.2 billion. Dhariwal is expected to report improved earnings on the back of commissioning of the three year medium-term PPA with the Railway Energy Management Co.,” said the brokerage. The brokerage has given a buy on the counter with the target price of Rs 113.

NHPC
For the largest hydropower producer in the country, the brokerage sees steady earnings for the September quarter, with a marginal rise of 3.5% in revenue, driven by overall decrease in generation. On the counter, HDFC Securities maintains a ‘buy’ rating with a target price of Rs 41 per share.

NTPC
For the state-run power producer, the brokerage sees a rise in top line by as much as 23.6% YoY on the back of the rise in fuel prices. Also, the PAT is seen to grow 5.4% YoY. On the utility major, the brokerage has maintained a ‘buy’ with a target price of Rs 185.

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)