Power sector to beat the summer heat!!!
There is a growing fear that the power crisis in the peak summer season may imitate last year's scenario, which may lead to loadshedding and higher power cost during the season. This is further accentuated by the recent India Meteorological forecast of high temperatures between March and May 2023, which may eventually lead peak power demand to exceed the expected level of 230 GW.
The government, over the past few months, has made hectic moves taking various proactive steps to ensure smooth power availability during the peak summer season. The key measures range from a) asking all imported coal based power plants to run at optimum capacity, b) allowing IEX to launch a high power day ahead market (DAM) with a ceiling of Rs 50 per unit, c) NTPC being the nodal agency to operate and sell power from 4000 MW gas based power plant (peaking power) and also generate 5000 MW from its own gas based capacity while the d) Railway Ministry will provide 418 rakes to different subsidiaries of Coal India along with captive blocks to meet power sector demand, etc.
The concerns stated above are valid given the like-to-like rise in energy consumption and hot summer but at the same time if actions taken by the government all fall in place, then the country may not face a precarious situation similar to the one faced in the last peak season in terms of power availability. The other way to capitalise on the above situation is to be positive on power sector companies who will be clear beneficiaries during the peak season. NTPC, in our view, will be a big beneficiary given higher demand for power will lead to higher PLFs and incentives while strong capacity additions during the last few years are also expected to lead to better volume growth in the short-term. Along with this, monetisation of stake in renewable subsidiary and strong focus on augmenting the non-fossil-based portfolio will also lead to a rerating of the stock. On the other hand, we believe the worst is over for IEX in terms of volume decline as the high-power DAM market will provide the much-needed volume fillip during the peak season while its overall capability to introduce newer products and dominant market share in the power exchange space makes it a decent medium to long term bet.