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Power capacity addition front loaded; Generation blip on account of elongated monsoon

ICICI Securities 21 Nov 2025 DISCLAIMER

The second quarter (Jun-Sep) is usually a weak period for companies in the thermal power generation space as Hydropower and wind energy generation is at its highest during monsoon and thermal based plants generate at lower levels. This is because the power demand faces pressure from monsoon driving down the temperatures. YTD FY26 has been a recipient of an elongated monsoons with early showers beginning 2nd half of May 2025 and lasting upto end of October 2025. Power demand grew by a mere ~4% YoY in Jul-Sep 2025 with consumption at 450 billion units (BU). As a result, Tata power, NTPC and Power grid delivered a muted performance in Q2FY26 with +3%, -3%, and -3% revenue growth YoY respectively. Both Tata power and NTPC’s generation fell and Power grid was impacted by tepid asset capitalisation. Thus, profitability remained flat YoY for Tata Power as drop in generation was offset by new age renewable business. NTPC’s PAT saw 4% YoY increase on 4% rise in avg. realisation and savings of 50 bps in interest cost. On the other hand, Powergrid’s PAT declined 4% YoY.
Over the longer-term peak power demand is expected to touch 335 GW from (250 GW in FY25) which will require 780 GW of generation capacity. On the positive side, capacity addition has been front loaded in FY26E so far with India adding 26 GW of generation capacity led by solar (21.7GW) with total capacity addition aimed at ~40-50 GW in FY26E taking total generation capacity to ~520-530 GW. In comparison FY25 and FY24 saw capacity addition of 33 GW and 26 GW respectively.
Thus, NTPC saw 48% of annual capacity addition in H1FY26. Whereas, Tata Power saw muted capacity addition of ~200MW and Powergrid had only 25% of annual capex capitalisation planned.
Going ahead, Tata Power, NTPC and Power Grid have extensive capacity addition plans with Tata power doubling its capacity by 2030 and it also announced plans to set up India’s largest solar ingot and wafer manufacturing facility. NTPC plans to treble its capacity by 2037 to 244 GW from 85 GW currently and Power grid has works in hand of ₹1.5 trillion, it aims to ramp up capital expenditure to ₹45000 crore annually in FY28E from ~₹26000 crore in FY25.
Thus, we believe Tata Power, NTPC and Power grid to be the best picks in the Power sector. We have target price of ₹530 for tata power, ₹420 for NTPC and ₹312 for power grid.

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