Motilal Oswal Financial Services

Power Utilities: Thematic

Power Utilities

POWERING

NDIA

A colossal multi-decade investment opportunity beckons



Valuation metrics

Mcap TP Upside

(INRb) (INR) (%)



NTPC

4,111 450 10.0

Power Grid Corp 3,172 425 24.0

Tata Power Co

1,417 530 19.0

JSW Energy Ltd

1,283 917 16.0

IEX

207 226 -5.0

Company



India total installed capacity (GW)

900

610

442



Jun'24

Mar'27

Mar'32

Source: CEA, MOFSL

Investment opportunity of INR40t and more:

We estimate an investment opportunity

of INR40t (INR34t in firm capex + INR8t in optionality) in the Indian power sector over

the next decade, with generation, transmission and smart metering accounting for

86%/10%/4% of this spending. The triple tailwinds driving this mammoth investment

are: 1) power demand accelerating at a higher 7% CAGR (5% previously), 2) the need

to upgrade/replace old power infrastructure as electricity mix undergoes a shift (more

RE all-day), 3) the transition to cleaner sources of energy given India’s target of 500GW

in RE capacity by 2030.

Power demand growth accelerating at 7% CAGR (vs. 5% earlier):

Across a range of

metrics, India’s consumption trends today mirror China’s in the 2000-03 period. In the

following two decades, China’s power consumption compounded at ~8% (real GDP

growth ~8.7% CAGR). With a robust GDP growth outlook for India and the emergence

of new demand drivers (electric vehicles, data centers, electrification of energy

demand), we believe power consumption in India can compound at 7%+ over the next

decade (currently 8-9%).

By 2035, EVs and data centers to drive one-third of power demand growth:

Electric

vehicles (EVs) and data centers account for a negligible share of power demand in

India today. Yet, by 2035, we estimate one-third of power demand growth might be

attributable to these two sectors. We assume data center capacity in India to

compound at 30% over the next decade and assume 60%/20%/20% penetration (in

new vehicle sales) for two-wheelers (2Ws), PVs and CVs by the end of this 10-year

period.

RE generation/transmission preferred over thermal/exchange space:

We like RE

generation (short gestation, long-term visibility of earnings) over thermal (80GW

opportunity + assured return but longer gestation & coal price volatility). Lukewarm

participation by the private sector in thermal means the risk of execution slippages is

higher. We also like the transmission segment, in which Power Grid’s INR2t capex

opportunity for the industry may expand. While energy exchanges should benefit from

the expansion of generation and transmission infra and the launch of new products,

the regulatory risk related to market coupling remains tough to predict.

Initiate with BUY on Power Grid, JSW Energy, Tata Power; Neutral on NTPC, IEX:

Given

this colossal multi-decade investment opportunity, we initiate on Power Grid (TP:

INR425), JSW Energy (TP: INR917) and Tata Power (TP: INR530) with a BUY rating and

NTPC (TP: INR450) and IEX (TP: INR226) with a Neutral rating.

Key risks: 1) delays in start-up of new projects; transmission connectivity in some

states (e.g. Rajasthan) already clouding RE pipeline outlook, 2) lower-than-expected

profitability in RE projects, 3) rising competitive intensity in transmission (TBCB)/plain

vanilla solar/wind generation projects, 4) price volatility in key commodities and

components, 5) insufficient domestic solar module capacity, 6) risk of market coupling

for dominant power exchanges.

India’s power consumption set to transition to a higher orbit



India’s current primary energy and electricity consumption trends closely mirror

those of China in the early 2000s. India’s primary energy consumption in CY23

was 48 EJ (vs. China’s 49 EJ in 2000), while per capita electricity consumption in

2023 stood at 1.4 MWh (vs. China’s 1.3 MWh in 2002).

September 2024

Power Utilities: Thematic



In the 2000-20 period, China’s power demand increased at a 9.4% CAGR as real

GDP growth and per capita income compounded at 8.7%/8.1%. Historically,

power demand in China/India has grown by 1.1x/0.9x higher than their real GDP

growth. In the last three years, though, the multiplier for India averaged 1.2x.

As such, like China, we believe power consumption in India is at an inflection

point given the expectation for India to grow by 6.5-7% over the next decade,

and can comfortably compound at 7-7.5% over the next 10 years (vs. 5% CAGR

in the past two decades).

Electrification of energy key demand driver globally



Globally,

electrification of energy

has been a key driver of power demand. The

International Energy Agency (IEA) expects electrification globally to rise from

18% in 2015 to 20% in 2023. Further, to meet the net zero emission status in

2050, the share of electricity in final energy consumption needs to rise to 30%

by 2030.

Electrification is already a well-entrenched trend for residential and office

buildings and is fast catching up in sectors such as transport. By 2030, EVs could

account for ~2-3% of global electricity demand and a

significant 10% of global

power demand growth.

In India, electrification is most evident in the 2W space, which would see EVs

account for 50% of total sales by FY28, as per Ola Electric. Rising per capita

income in India is driving higher household ownership of electrical appliances,

e.g., air conditioners; another example of electrification of space

cooling/heating (room AC sales in India saw 6% CAGR in FY15-24).

In a decade, we estimate EVs may account for ~15% of India power demand

growth with 2Ws/PVs/CVs accounting for 9%/2%/4% of demand growth.

5G, Artificial Intelligence emerging as demand drivers for power



The most advanced technologies globally run on electricity. As such, every time

consumers around the world undergo a technological upgrade, power demand

witnesses a leg up. For example, a simple Google search needs 0.3Wh of power,

while a Chat GPT query consumes 10x the amount of power of a Google search.

Upgrade to 5G networks, rising use-cases for artificial intelligence (AI) and the

Internet of Things (IoT) are thus future drivers for power demand and the

proliferation of data centers across the world.

In the US, data centers already

account for ~30% of total power demand growth.

Based on data from IEA, we

estimate data centers, crypto-currency and AI together can account for 10-15%

of global demand growth in the coming years.

While India has a small data center footprint for now (capacity: ~1GW), data

center capacity is expected to compound in high double digits in the coming

years.

By 2035, we estimate data centers to account for 15% of Indian power

demand growth.

Robust GDP growth, electrification, technology trends converging in India



In developed countries and even in China, the ownership of household

appliances, and hence electrification of energy demand, is already relatively

high. Much of the developing/under-developed world lags in technological

upgrades (such as 5G/AI), which are now common in America/Europe.

September 2024

Power Utilities: Thematic



India, instead, is a unique case where burgeoning real GDP/per capita growth,

technology upgrades and electrification are all strong under-currents and

could continue to drive power demand higher for years to come.

India’s real

GDP has grown at 5.9% CAGR in the last 10 years and is expected to grow at 6.5-

7% in the coming decade. Further, the electrification of transport will likely be a

demand driver for many years to come (metro rail network to expand to

~2,000km by in the next few years, boosting EV penetration). While India’s data

center capacity currently is below 900 MW, it could rise to 11GW in 10 years

(assuming 30% CAGR).

The convergence of a robust economic growth outlook, electrification of energy

demand and technology as a demand driver should create an investment

opportunity worth INR40t in the power sector. Note that our estimate is 33%

higher than the INR30t estimate cited by Union Minister for New and

Renewable Energy recently (link). We estimate generation/transmission/smart

metering to account for 86%/10%/4% of this colossal opportunity. This estimate

includes RE power capacity required for green hydrogen production and the

need to upgrade existing transmission infrastructure.

This massive investment opportunity is premised on India’s vision to increase its

installed power capacity to 900GW in FY32 from 442GW in FY24, with solar and

wind together accounting for ~53% of total installed capacity, even as thermal's

share is expected to fall to 29%.

The strong turnaround in the financial health and outlook of the power sector

would not have been possible without pro-active policymaking. The central

government has undertaken a slew of steps in the last few years to turn around

the operational and financial health of the sector. The implementation of the

late payment surcharge (LPS) in 2022 has helped reduce total outstanding dues

of states from INR1,397b as of Jun'22 to INR500b as of Jan’24 (link). One of the

key priorities of the Power Ministry has been the reduction of India’s AT&C

losses, which decreased from 22% in FY21 to 15% in FY23 (link). The government

has provided funding support in areas such as distribution infrastructure and

battery storage while continuing to encourage investment in new areas such as

offshore wind and nuclear energy.

We believe that expectations of strong earnings growth, coupled with high

valuations, create the potential for minor earnings slippages to escalate to

substantial de-rating. We estimate a 13% earnings CAGR for our coverage

companies during FY24-27.

Key risks: 1) delays in the start-up of new projects; transmission connectivity

issues in states such as Rajasthan has already started to have some impact, 2)

lower-than-expected profitability in RE projects, 3) rising competitive intensity

especially in transmission (TBCB)/plain vanilla solar/wind generation projects,

4) price volatility for key commodities and components, 5) insufficient

domestic solar module capacity, 6) risk of market coupling for dominant

power exchanges such as IEX.

INR40t opportunity in India’s power sector



Proactive regulatory support has been a solid tailwind



Rising competition, earnings slippages are key risks



September 2024

Power Utilities: Thematic

Prefer RE generation/transmission given robust returns/cash flow visibility



Within the power sector, we prefer segments with a short gestation period, high

visibility of long-term earnings and cash flows, and low risk of an earnings miss

over FY24-27. As such, we like the RE generation segment, especially solar/wind

over thermal/hydro.

We also like the strong capex outlook for transmission, although we note that

the competitive intensity in the segment has increased significantly and TBCB

(tariff-based competitive bidding) bids now yield an IRR of 11-12% (vs. 15% in

regulated tariff mechanism-based projects, but this is less frequent). Thermal

and pumped storage projects are attractive opportunities (IRR: 15-20%) but

have long gestation periods (6-8 years) and are more prone to risk relating to

regulatory approvals and land acquisition.

We are constructive on energy exchanges given the strong installed capacity

growth outlook, rising power demand, and launch of new products, which are

driving improvements in penetration. However, the lack of clarity in government

policy with respect to market coupling remains a risk for individual companies.

Hence, we have a Neutral rating on IEX.

PWGR, JSWE, TPWR are top picks; Neutral on NTPC, IEX



We initiate coverage on the Indian power sector with a BUY rating on Power

Grid (PWGR), JSW Energy (JSWE), and Tata Power (TPWR) and Neutral rating

on National Thermal Power Corporation of India (NTPC), and India Energy

Exchange (IEX).

PWGR – The bellwether transmission play with ~3.5% FY27E dividend yield:

We like PWGR as a bellwether play on the INR2t transmission opportunity with

limited competition in the more complex HVDC space, where it already has an

established track record. Even at 17x FY27PE and 9x EV/EBITDA, the implied

dividend yield is ~3.5%, which we believe is attractive.

JSWE – Prudence, execution, growth:

JSWE’s capacity is set to grow 2.4x over

the next 2.5 years and we see a strong likelihood of the company achieving the

guided 20GW in installed capacity before 2030. JSWE’s strong execution, ability

to turnaround tough assets (Mytrah/Ind-Barath), robust balance sheet and

prudent capital allocation for growth are key differentiators vs. peers.

TPWR – Diversified operations, scalability key growth drivers:

TPWR is

undergoing a multi-year business transformation, with 45% of capex over FY23-

27 to be allocated to RE projects. This is instrumental in increasing the share of

core earnings from 40% to 90% over FY23-27. At 13x EV/EBITDA (LT avg: 10x),

we believe there is scope for further re-rating given lower earnings volatility (vs.

history) and strong 14% PAT CAGR in FY24-27.

NTPC – NGEL IPO may offer limited upside; holdco. discount hard to predict:

NTPC’s re-rating in the last two years is attributable to a large extent to its

burgeoning RE business, which is on a path to IPO in 1HCY25. We value the RE

business at INR880b and believe the upside could be largely priced in. Further,

we believe the holding company discount after listing is hard to predict and

investors may prefer investing in NGEL over NTPC for RE exposure. Lastly,

although we are cautiously optimistic on thermal, NTPC, excluding NGEL, is

trading at FY27E PB of 1.6x, which we view as reasonable (and not inexpensive).

NTPC’s FY27E dividend yield at 2.6% compares poorly with PWGR’s ~3.5%.

September 2024

Power Utilities: Thematic



IEX – Solid outlook but market coupling a risk:

IEX is a natural beneficiary of

rising power consumption, growth in power infrastructure, launch of new

products such as long-dated contracts, and rising FDRE projects. We estimate a

CAGR of 17%/15% in IEX's volumes/PAT during FY24-27 amid falling power

prices, favorable base effect and strong market share. We believe the launch of

long-dated contracts could add 4% to volumes in the initial year. However, the

potential implementation of market coupling is a key regulatory overhang that

could dampen IEX's growth prospects given its dominant market share.

Exhibit 1:

Domestic peer comparison

Company Name

NTPC

Power Grid Corp

Tata Power Co

JSW Energy

IEX

ROE (%)

MCap

Upside/

Rating

(INRb)

(INR) (Downside) FY25E FY26E

4,111 Neutral 450

3,172 Buy 425

1,417 Buy 530

1,283 Buy 917

207 Neutral 226

10%

24%

19%

16%

-5%

13.6

19.1

14.7

13.3

35.3

14.2

19.1

15.8

13.8

35.3

EV/EBITDA (x)

FY25E

11.4

10.2

14.4

19.7

46.7

FY26E

10.5

9.6

13.1

17.5

38.7

PE (x)

FY25E

18.1

18.6

28.3

43.7

56.2

FY26E

16.0

17.8

23.8

37.6

47.1

PB (x)

FY25E

2.4

3.5

4.0

5.5

18.2

FY26E

2.2

3.3

3.6

4.9

15.3

Dividend Yield (x)

FY25E

2.4

3.4

0.6

0.3

0.9

FY26E

2.6

3.5

0.7

0.4

1.1

Source: Bloomberg, MOFSL

September 2024

Power Utilities: Thematic

STORY IN CHARTS

EVs, Data centers to power 1/3 of electricity demand growth Data centers to account for ~15% of power consumption

in 10 years

growth in a decade

FY35 Power Demand Growth (in tWh)

Particulars

India's CY34 data center power consumption

India's data center power consumption growth

in CY35 (at 20% growth YoY)

India's CY34 power consumption (at 7% CAGR)

India's power consumption growth in CY35 (at

5% growth YoY)

India's CY34 total power consumption

attributable to data centers

India's CY35 power consumption growth

attributable to data centers

tWh

Unit

120.8

24.2

3,190.7

159.5

3.8%

15.1%

15%

68%

Others

Data Centre's

EV-2 Wheelers

EV-4 Wheelers PVs

EV-4 Wheelers CVs

EV-3 Wheelers

Source: MOFSL

Electrification of energy demand globally to rise to 30% by

2030

30%

EVs to account for ~17% of power consumption growth in

FY35

EV-2 Wheelers FY35 total power consumption

EV-4 Wheelers PVs FY35 total power consumption

EV-4 Wheelers CVs FY35 total power consumption

14.1

3.2

5.8

20%

18%

EV-3 Wheelers FY35 total power consumption

4.1

India's power consumption growth in CY35

159.5

(at 5% growth YoY)

India's FY35 power consumption growth attributable to EV's 17.1%

Source: MOFSL

2015

2023

2030

Source: IEA, MOFSL

India power demand growth

Total Generation including RE (BU)

% growth

India peak demand growth

Peak Demand (GW)

243

177 184

190

203

216

119 122

130 135 136

148 153

160 164

Source: CEA, MOFSL

September 2024

Power Utilities: Thematic

STORY IN CHARTS

India installed capacity (GW)

Jun'24

Mar'27

Mar'32

365

235

260

186

122

Coal & Lignite

Gas

Large Hydro (incl. PSP)

Wind

Solar

Nuclear

Source: CEA, MOFSL

218

Small Hydro Power

Renewable mix in Mar’24 (GW)

81.8

45.9

10.4

AT&C losses have been on a declining trend

AT&C LOSSES (%)

46.9

5.0

23.7

21.5

21.6

20.7

21.2

0.6

16.2

15.4

FY23

FY16

Source: CEA, MOFSL

FY17

FY19

FY20

FY21

FY22

Source: CEA, MOFSL

India Vision

FY24

FY32

STRONG DEMAND

~8-9%

CAGR

442

900

13%

EARNINGS CAGR

FAVOURABLE POLICY STANCE

September 2024

Power Utilities: Thematic

Rising competition, earnings slippages are key risks

We believe that

expectations of

strong earnings

growth, coupled

with high

valuations, create

the potential for

minor earnings

slippages to

escalate to

substantial

de-rating.

Lower-than-

expected

profitability in

RE projects

Delays in the

start-up of

new projects

Rising

competitive

intensity

Price volatility

for key

commodities

and

components

Insufficient

domestic solar

module

capacity

Risk of market

coupling for

dominant

power

exchanges

such as IEX

Investment argument

NTPC

FY24-27 EPS CAGR

at 9%; pipeline

still expanding

for FY27 and

beyond

Low funding

cost vs. peers;

thermal project

economics

remain

attractive

NGEL listing can

be a key

catalyst

POWER GRID

Strong

visibility of EPS

and OCF

growth;

dominant

market share

Capex cycle

is just

picking up

now

September 2024

Power Utilities: Thematic

TATA POWER

Aims to double

profits by 2027;

execution will be

key

We like integrated

business model,

strong execution

Offers exposure to

several large

opportunities

JSW ENERGY

Ambitious growth

plans to drive 25%

EPS CAGR during

FY24-27

Well-funded balance

sheet and strong

visibility on cash

flows

Strong track record of

turning around assets

INDIAN ENERGY EXCHANGE

Regulatory

overhang a key

obstacle to

growth

outlook

Recent volume

trends

have been

supportive

IGX provides

medium- to

long-term

optionality

September 2024

Power Utilities: Thematic

Empowering India!

India's energy consumption mirrors China’s during 2000-2003

India’s current primary

energy and electricity

consumption trends closely

mirror those of China in the

early 2000s. India’s primary

energy consumption in

CY23 was 48 EJ (vs. China’s

49 EJ in 2000), while per

capita electricity

consumption in 2023 stood

at 1.4 MWh (vs. China’s 1.3

MWh in 2002).



India’s current primary energy and electricity consumption trends closely mirror

those of China in the early 2000s. India’s primary energy consumption in CY23

was 48 EJ (vs. China’s 49 EJ in 2000), while per capita electricity consumption in

2023 stood at 1.4 MWh (vs. China’s 1.3 MWh in 2002).

In the 2000-20 period, China’s power demand increased by a 9.4% CAGR as real

GDP growth and per capita income compounded at 8.7%/8.1%. Historically,

power demand has grown in China and India at 1.1x/0.9x real GDP growth rates.

In the last three years, though, the multiplier for India has averaged 1.2x.

Electricity consumption growth had a high 76% correlation with per capita GDP

growth in China over the 2000-22 period. The corresponding statistic for India

for the 2000-22 period was lower at only 49%, though the last 10 years of data

suggests that the correlation for India is higher at 59%.

As per IMF’s Jul’24 update (link), India’s economy is slated to grow at a robust

7% in 2024 and 6.5% in 2025. As per IMF, a robust domestic demand

environment and rising working-age population are key drivers of strong

economic growth. Given a robust economic growth outlook, we believe power

demand can comfortably rise at 7-7.5% CAGR over the next 10 years (vs. 5%

CAGR in the past two decades).

Exhibit 2:

China and India’s aggregate electricity consumption and real GDP growth rates during 2000-23

10,000

7,500

5,000

2,500

China electiricty demand (in TWh)

India electricity demand (in TWh)

China GDP

20,000

15,000

10,000

5,000

Source: Ember and World Bank, MOFSL

Exhibit 3:

China and India’s power demand to real GDP growth rate multiplier

3.0

2.3

1.5

0.8

0.0

China multiplier

India multiplier

LTA - China multiplier

LTA - India multiplier

Source: Ember and World Bank, MOFSL

September 2024

Power Utilities: Thematic

Exhibit 4:

Co-relation between per capita net national income growth rate and real GDP growth rate - China and India

China multiple

1.5

1.0

0.5

0.0

-0.5

India multiple

Source: CEA, MOFSL

China's power consumption grew at 8.8% CAGR over 2000-23



After 2000, China’s power consumption grew at 12%/6% in the next two decades.

In contrast, India’s power consumption rose at ~5% CAGR in the last two decades.

However, recently power consumption growth in India has picked up to 8-9%.

Due to a higher growth rate, China's aggregate electricity consumption, which was

2.7x that of India's in 2000, rose further to 5.8x in 2022. In line with aggregate

electricity consumption, in the 2000-22 period, China's per capita electricity

consumption grew at 8.3% CAGR, while India's languished at 4.2%.

Exhibit 5:

Per capita electricity demand (in MWh)

China per capita electricity demand (in MWh)

7.0

5.3

3.5

1.8

0.0

India per capita electricity demand (in MWh)

6.6

1.4

Source: Ember and World Bank, MOFSL

In the FY21-23 period after

Covid-19, power demand

saw an 8% CAGR.

India’s power demand to grow 8-9% over FY24-27E



During FY17-24, India’s overall power requirement clocked a 5% CAGR to 1,734

billion units (BU). Peak power demand also saw a similar growth rate over FY17-

24. In the FY21-23 period after Covid-19, power demand saw an 8% CAGR.

Key factors driving strong power demand include rising population,

urbanization, low per capita power consumption and a pickup in economic

activity.

India’s per capita power consumption has been low at only ~1,380kwh vs.

~6,630kwh in China. As per a report by NITI Aayog, 31% of India’s population

was urbanized in 2011, which is set to rise to ~50% by 2050. Should India’s GDP

growth continue at ~7% per annum in the next few years, we expect power

demand to continue to grow at 7-9% p.a. in the coming years.

The Central Electricity Authority (CEA) expects total energy consumption to

increase at a 7% CAGR during FY22-27, followed by a 5.8% CAGR during FY27-32.

September 2024

Power Utilities: Thematic

Exhibit 6:

India’s power demand growth

Total Generation including RE (BU)

% growth

Source: CEA, MOFSL

Peak power deficit has been expanding again

The overall energy deficit

declined from a high of 87

BU (or 10% of peak

demand) in FY13 to only 5

BU (or ~0.4%) in FY21.



The peak power deficit used to be as high as 15GW (or ~13% of peak demand) in

FY10, which declined to only 1GW (or less than 1%) in the FY19-21 period. This

was mainly attributable to slower demand growth during FY14-21 and a pickup

in power supply, especially during FY14-19.

As a result, the overall energy deficit declined from a high of 87 BU (or 10% of

peak demand) in FY13 to only 5 BU (or ~0.4%) in FY21.

The peak deficit, though, has been rising again for the last two years, and in

FY23, it was as high as 9GW or ~4% of peak demand.

As per Mr. R K Singh, ex- Union Power Minister, peak power demand in India is

set to rise to ~400 GW by 2030 from 216 GW in FY23 (Peak

power demand likely

to cross 400GW by 2030: R K Singh).

While India has been ramping up renewable capacity over the years, peak power

demand often coincides with non-solar hours, thus increasing the requirement for

round-the-clock (RTC) power.

Exhibit 7:

Peak demand growth

Peak Demand (GW)

243

190

203

216

119

122

130

135

136

148

153

160

164

177

184

Source: CEA, MOFSL

Electrification of energy will be a long-term demand driver



Electrification of energy demand means replacing conventional sources of energy

(e.g., fossil fuels for cooking/space heating) with electricity.

IEA expects electrification of energy demand globally to rise from 18% in 2015 to

20% in 2023. To achieve net zero emissions globally by 2050, electrification should

rise further to 30% by 2030, as per IEA estimates.

September 2024

Power Utilities: Thematic

Space heating, cooling and

transport are the most basic

use-cases where traditional

methods are being replaced

with electrical ones, not

only in India but also

globally.



Space heating, cooling and transport are the most basic use-cases where

traditional methods are being replaced with electrical ones, not only in India but

also globally.

In India, room AC sales have seen a 5% CAGR from FY20-23. Further, as per capita

income and household ownership of electrical appliances rise in India,

electrification of energy demand should continue to improve in the coming years.

Exhibit 9:

Electrification of energy demand globally to rise to

30% by 2030

13.9

12.1

10.5

30%

Exhibit 8:

Room Air conditioner sales volumes (in m)

3.4 3.9

4.7

5.5

6.5 7.2

8.4

5.2

6.4

20%

18%

2015

Source: Industry, MOFSL



2023

2030

Source: IEA, MOFSL

EVs, metro network driving electrification of transport in India

4W electrification has been

slow but has continued to

pick up pace, helped by

improved affordability, fast

expanding network of

electric chargers and the

launch of new EV models by

automobile companies.



IEA estimates EVs to account for ~2% of global power demand by 2030. While this

looks like a miniscule number for now, note that EV-related demand is growing in

double digits (vs. global power demand growth of ~3.4%). As such,

EVs could

account for ~10% of global power demand growth by 2030.

In India, electrification of the transport sector is most evident in the 2W category,

while progress on 4W electrification has continued at a steady pace. As per Ola

Electric, EVs could account for ~50% of domestic 2W sales volume by FY28.

Despite robust growth in 2W electrification, India will continue to lag countries

like Germany and China, where electric 2W penetration is estimated at ~90%,

highlighting the potential for further electrification in the 2W industry.

In contrast, 4W electrification has been slow but has continued to pick up pace,

helped by improved affordability, fast expanding network of electric chargers and

the launch of new EV models by automobile companies. Olectra, one of the

largest providers of electric buses in India, has seen steady growth in its order

book, with e-bus orders growing 8x in the 2021-23 period.

Orders received

5831

3017

Exhibit 10:

Olectra’s calendar year wise order received in terms of number of e-buses

2625

124

513

545

754

Source: Olectra, MOFSL

September 2024

Power Utilities: Thematic



Besides 2Ws and 4Ws, India’s metro rail network is also undergoing a

transformation currently. From just five cities and 250km, the metro network has

already expanded to over 20 cities and over 900km by 2023. Additionally, metro

lines are under-construction in 25 cities and the network is set to expand to

~2,000km in the next few years. The pace of progress in metro network has also

undergone a monumental shift from an average monthly commissioning of only

0.7km of metro line before May’14 to ~ 6km now.

Exhibit 11:

EVs to account for ~17% of power consumption growth in FY35

Number of 2 Wheelers to be added in FY35

EV penetration rate

Number of EV-2 Wheelers to be added in FY35

Average km travelled per vehicle per day

Number days p.a.

EV-2 Wheelers km travelled p.a. in FY35

EV-2 Wheelers power consumption per km

EV-2 Wheelers total power consumption in FY35

Number of 4-Wheelers passenger vehicles to be added in FY35

EV penetration rate

Number of EV-4 Wheelers to be added in FY35

Average km travelled per vehicle per day

Number days p.a.

EV-4 Wheelers km travelled p.a. in FY35

EV-4 Wheelers power consumption per km

EV-4 Wheelers passenger vehicles total power consumption in FY35

Number of 4-Wheelers commercial vehicles to be added in FY35

EV penetration rate

Number of EV-4 Wheelers to be added in FY35

Average km travelled per vehicle per day

Number days p.a.

EV-4 Wheelers km travelled p.a. in FY35

EV-4 Wheelers power consumption per km

EV-4 Wheelers commercial vehicles total power consumption

Number of 3-Wheelers commercial vehicles to be added in FY35

EV penetration rate

Number of EV-3 Wheelers to be added in FY35

Average km travelled per vehicle per day

Number days p.a.

EV-3 Wheelers km travelled p.a. in FY35

EV-3 Wheelers power consumption per km

EV-3 Wheelers commercial vehicles total power consumption

Total power consumption by EV's in FY35

India's current power consumption

India's CY34 power consumption (at 7% CAGR)

India's power consumption growth in CY35 (at 5% growth YoY)

India's FY35 power consumption growth attributable to EV's

m units

days

b km

kWh/km

tWh

m units

days

b km

kWh/km

tWh

m units

days

b km

kWh/km

tWh

m units

days

b km

kWh/km

tWh

30.7

60%

18.4

50.0

330.0

304.3

0.05

14.1

7.2

20%

1.4

50.0

330.0

23.8

0.14

3.2

1.7

20%

0.3

200.0

330.0

21.9

0.27

5.8

1.2

70%

0.8

150.0

330.0

41.0

0.10

4.1

27.2

1,622.0

3,190.7

159.5

17.1%

Source: MOFSL

September 2024

Power Utilities: Thematic

Every subsequent

technology upgrade

consumes a

disproportionately higher

amount of power. For

example, a simple Google

search requires 0.3Wh of

electricity, while a Chat GPT

query consumes 10x the

power consumption of a

Google search.

Technology transitioning from fringe to mainstream power demand driver



In the next decade, technology could transition from a fringe driver of electricity

consumption growth to a mainstream driver. While lighting and space

heating/cooling have been traditional drivers of power demand, data centers, 5G,

AI and IoT are emerging as new drivers of power demand.

Note that every subsequent technology upgrade consumes a disproportionately

higher amount of power. For example, a simple Google search requires 0.3Wh of

electricity, while a Chat GPT query consumes 10x the power consumption of a

Google search. At 9b queries every day, global power supply will need to rise by

an estimated 11TWh per annum.

Exhibit 12:

India's data center capacity is significantly underpenetrated vs global peers

Internet user (%)

Mobile data (EB/Month)

Data centers (MW per million users)

Data centers capacity (MW )

India

877

China

3,800

USA

15,930

8,300

Source: CareEdge Ratings, MOFSL; *EB:Exabyte



The most obvious source for technology-related power demand is a data center.

There are estimated 8,000 data centers globally, with the US accounting for 33%.

India has ~150 data centers; this number is likely to rise significantly in the coming

years. In a typical data center, computing, cooling and other ancillary IT

infrastructure typically account for 40%/40%/20% of total power demand. In

countries such as the

US, data centers already account for nearly 30% of power

demand growth.

Exhibit 13:

Data center power consumption split among various components (%)

Other ancilliary IT

infrastructure

20%

Computing

40%

Cooling

40%

Source: Company, MOFSL



As of CY23 end, India's data center operational capacity reached 877MW, a

significant increase following the unprecedented demand surge in FY22 driven by

pandemic-induced reliance on digital infrastructure. In the coming years, data

center as a sector is expected to expand at a ~30% CAGR given India’s rising data

consumption and migration of subscribers from 2G/3G to 4G/5G technologies.

While India has the lowest internet user penetration, we have higher mobile data

consumption than China, the US, and European Union. However, data center

capacity per million internet users in India is only 1MW, compared to 4MW per

million users in China, and 51MW per million users in the US.

September 2024

Power Utilities: Thematic

Exhibit 14:

Data center capacity in India (in MW)

1950

2007

122

2010

207

2014

350

447

565

722

877

2019

2020

2021

2022

2023

2026

Source: CareEdge Ratings, MOFSL

As per JLL Research, the

rapid growth in the data

center industry should be

primarily driven by the rise

in 5G subscriptions as data

usage on smartphones is

expected to see a 16%

CAGR, up from

26GB/month in 2022 to

62GB/month by 2028.



As per JLL Research, the rapid growth in the data center industry should be

primarily driven by the rise in 5G subscriptions as data usage on smartphones is

expected to see a 16% CAGR, up from 26GB/month in 2022 to 62GB/month by

2028. In India, Generative AI is projected to rise at a 28% CAGR from 2023 to

2030, which will significantly boost demand for data centers.

Exhibit 15:

Significant increase in data subscribers in India due to rising affordability and

higher smart phone penetration

Data Subscribers (m)

830

709

400

220

Mar 14

Mar 17

Mar 20

Mar 23

Source: TRAI, MOFSL

Exhibit 16:

5G to hold 65% share of subscriptions in India, Nepal and Bhutan by CY29

LTE (4G)

WCDMA/HSPA - Only(2G)

WCDMA/HSPA (3G)

2023

10%

63%

20%

2029

65%

32%

Source: Ericsson, MOFSL



Data centers, crypto currencies and AI consumed an estimated 460 TWh (2% of

global power demand) globally in 2022 and IEA's estimate for 2026 is 1000 TWh

(~3.3% of global electricity consumption; growing in double digits).

As such, by

2030, all three put together can account for 10-15% of global electricity demand

growth.

September 2024

Power Utilities: Thematic

Exhibit 17:

Data centers to account for ~15% of the power consumption growth in CY35

Particulars

India's current data center capacity

India's CY34 data center capacity at (30% CAGR)

Power consumption per 1 GW

India's CY34 data center power consumption

India's data center power consumption growth in CY35 (at 20% growth YoY)

India's current power consumption

India's CY34 power consumption (at 7% CAGR)

India's power consumption growth in CY35 (at 5% growth YoY)

India's CY34 total power consumption attributable to data centers

India's CY35 power consumption growth attributable to data centers

tWh

Unit

1.0

13.8

8.8

120.8

24.2

1,622.0

3,190.7

159.5

3.8%

15.1%

Source: MOFSL

We estimate the total

investment opportunity size

at INR40t, higher than the

INR30t estimate cited by

the Union Minister for New

and Renewable Energy

recently (link). We estimate

generation, transmission

and smart metering to

account for 86%/10%/4% of

this opportunity.

We estimate investment opportunity of ~INR40t over the next decade



We estimate the total opportunity size from the power uptrend is INR40t,

higher than the INR30t estimate cited by the Union Minister for New and

Renewable Energy recently (link). We estimate generation, transmission and

smart metering to account for 86%/10%/4% of this opportunity.

There are three drivers of the power investment opportunity: 1) the need to

expand power infrastructure for generation and transmission, 2) the transition

from a thermal-heavy infrastructure to a renewable-ready infrastructure, 3) the

upgrade of existing infrastructure to meet rising demand.

This massive investment opportunity in generation is premised upon India’s

vision to increase its installed power capacity to 900GW in FY32 from 442GW in

FY24, with solar and wind together accounting for ~53% of total installed

capacity, even as thermal's share is expected to fall to 29%.

Further, while CEA has a target of 500GW of RE installed capacity by 2030, we see

scope for further upside to this number due to India’s target to produce 5 MMT

green hydrogen by 2030. Assuming 20GW RE installed capacity requirement for

every one MMT of green hydrogen (GH), we estimate another INR5.6t in

investment opportunity from GH-related RE investment.

Such a massive increase in generation capacity will also require substantial

investment in transmission infrastructure. While PWGR estimates transmission-

related industry capex of INR2t, as per NEP Vol II, the transmission sector may

need a capex of ~INR4t given the need to expand and upgrade the current

transmission lines.

Lastly, given the government’s vision to reduce AT&C losses and the ACS-ARR gap,

India has undertaken a mission to replace the country’s ~250m conventional

meters with smart meters. We estimate this will entail a total capex of ~ INR1.2-

1.5t. Besides reducing AT&C losses, smart meters can also help lower electricity

bills for consumers and help reduce carbon emissions by 30-35%.

September 2024

Power Utilities: Thematic

Exhibit 18:

Estimated investment opportunity of ~INR42t by FY32

Type of Fuel

Fossil Fuel

Coal & Lignite

Gas

Non-Fossil Fuel

Large Hydro (incl. PSP)

Wind

Solar

Small Hydro Power

Nuclear

TOTAL

Battery Energy Storage System (GW/GWh)

Transmission opportunity

Smart Metering

Firm capex

Optionality

Green Hydrogen related RE capex #

Transmission additional capex *

Total capex including optionality

# We assume 1 MMT of Green hydrogen production needs 20 GW of RE capacity.

* Additional transmission capex for upgrade of existing infrastructure

Mar'22

210.7

24.9

235.6

46.7

40.4

54.0

4.8

6.8

152.7

388.3

n.a.

Capacity (GW)

Jun'24

Mar'27

217.6

24.8

242.4

46.9

46.7

85.5

5.0

8.2

192.2

434.7

n.a.

235.1

24.8

259.9

59.9

72.9

185.6

5.2

13.1

336.6

596.5

8.70/34.8

Mar'32

259.6

24.8

284.4

88.9

121.9

364.6

5.5

19.7

600.5

884.9

47.24/

236.2

Change in

Capex per

Capacity (GW) MW (INR m)

42.0

85.0

70.0

Capex

(INR b)

3,570.9

3,354.9

3,762.0

13,954.6

35.6

2,069.6

23,176.7

26,747.5

3,968.2

2,000.0

1,500.0

34,215.7

125.0

45.0

5,625.0

2,400.0

42,240.7

Source: CEA, MOFSL

41.9

75.2

279.1

0.4

11.5

80.0

50.0

80.0

180.0

236.2

16.8

September 2024

Power Utilities: Thematic

India plans to raise installed power capacity to 900 GW

As per the National

Electricity Plan (NEP)

released by CEA in May’23,

India’s total installed power

capacity will rise from

~400GW in 2022 to over

600GW by FY27.



Given the strong power demand outlook and the need to transition to green

power, the government of India has outlined an ambitious capacity growth

outlook for the power sector.

As per the National Electricity Plan (NEP) released by CEA in May’23, India’s total

installed power capacity will rise from ~400GW in 2022 to over 600GW by FY27.

Thermal will account for ~39% of this expanded installed capacity, with solar and

wind making up 30% and 12%, respectively.

Further, by the end of FY32, total installed capacity is projected to rise to

~900GW, with solar and wind together accounting for ~53% of total installed

capacity, even as thermal’s share is expected to fall to 29%.

Exhibit 19:

India’s renewable mix in Mar’24 (GW)

81.8

45.9

46.9

10.4

Wind power

Solar Power

Biomass/Co-

generation

5.0

Small Hydro

Power

0.6

Waste To

Energy

Large Hydro

Source: CEA, MOFSL

Exhibit 20:

India’s RE installed capacity in 2027 and 2032

Estimated Installed Capacity by 2026-27 (GW)

Estimated Installed Capacity by 2031-32 (GW)

596.3

364.6

185.6

59.9 88.9

Large Hydro

(including PSP)

Solar

72.9

121.9

13.0 15.5

Biomass

5.2

5.5

Total

Source: CEA, MOFSL

336.6

Wind

Small Hydro

New power sources to emerge as capacity base expands



Besides solar and wind, which will see their installed capacity base rise manifold

in the FY24-32 period, new sources of power generation are expected to

emerge.

The strong growth in RE will also create the need for battery storage capacity.

Requirement for battery energy storage system (BESS) capacity, which is expected

to grow to 8.7GW/34.7 GWh by FY27 and further to 47GW/236 GWh by FY32.

NEP also forecasts an additional generation capacity of 27GW by FY32 from

pumped storage projects and ~20 GW from nuclear.

September 2024

Power Utilities: Thematic

Exhibit 21:

Nuclear capacity

19.7

13.1

6.8

FY22

FY27

FY32

Source: CEA, MOFSL

Exhibit 22:

BESS capacity growth projected between FY27 and FY32

BESS(GW)

47.2

8.7

2026-27

2027-32

Source: CEA, MOFSL

September 2024

Power Utilities: Thematic

Strong, pro-active policy support key to sector turnaround



Given the strong demand outlook and the need to expand the installed

generation capacity, the government has taken various initiatives over the years

to improve the overall health of the sector. Some of these initiatives are:

Late payment surcharge:

The implementation of the late payment surcharge

(LPS) in 2022 has yielded significant improvements in the recovery of

outstanding dues. As per the Ministry of Power, after the implementation of

LPS, the total outstanding dues of states declined from INR1,397b as of Jun'22 to

INR500b as of Jan’24 (link).

Reduction in AT&C losses:

High aggregate technical and commercial (AT&C)

losses have been a key structural impediment to improving the financial health

of various power sector entities. India’s AT&C losses declined from 22% in FY21

to 15% in FY23 (link), aided by improvements in collection and billing efficiency

and the installation of smart meters.

Exhibit 23:

AT&C losses have been on a declining trend

AT&C LOSSES (%)

23.7

21.5

21.6

20.7

21.2

16.2

15.4

FY23

Source: CEA, MOFSL

FY16

FY17

FY19

FY20

FY21

FY22



Revamped distribution sector:

The GoI has approved a budget of INR3t over

FY22-26 to revamp the distribution sector. The scheme is aimed at providing

financial assistance to upgrade and modernize distribution infrastructure. This

scheme aims to bring down AT&C losses to a 12-15% range by improving

operational efficiencies.

Reduction in ACS-ARR gap:

This is a key indicator of the financial and

operational performance of distribution companies. ACS stands for average cost

of supply and ARR stands for realizable revenue. The ACS-ARR gap narrowed to

INR0.33/kWh in FY22 from a high of INR0.83/kWh (per unit ACSH adjusted gap),

before rising to INR0.55/kWh in FY23.

Exhibit 24:

ACS-ARR (INR/kwh)

FY22

4.4

5.2

FY23

5.5

4.4

1.3 1.6

1.4 1.6

-0.2

-0.3 -0.6

Receivables Power Purchase Other Expenses GAP/Surplus

cash adjustment

cost

Source: CEA, MOFSL

Revenue

Booked (excl.

Subsidy)

Subsidy

received

September 2024

Power Utilities: Thematic



Allowing power generation companies to import coal:

Given strong demand,

especially in the peak hours, and the shortage of domestic coal, the GoI allowed

power utilities to import up to 6% of their coal requirements.

Imposition and extension of Section XI:

The GoI has been extending the

imposition of Section XI directing plants that use imported coal to run at full

capacity. This has been recently extended until 30

Sep’24.

Strong regulatory push driving RE expansion

Given India’s vision to expand its RE installed capacity from ~192GW as of

Dec’23 to 500GW (link), the government has launched a number of initiatives to

encourage RE installation. Some of the initiatives are:



Rooftop Solar Yojana,

also known as the PM Surya Ghar Muft Bijli Yojana, is

designed to provide 300 units of free electricity per month to 10m households

with a total outlay of INR750b. The scheme's goal is to lower household

electricity expenses by installing rooftop solar panels and utilizing solar energy.



As per the Ministry of New and Renewable Energy (MNRE), this plan aims to add

30-40GW of solar capacity through rooftop solar installations in residential

areas. This is expected to generate 1,000 BUs of electricity, which will lead to a

reduction of 720 MT of CO2 equivalent emissions over the 25-year lifespan of

the rooftop systems.



The government offers subsidies for installing solar panels, with amounts

ranging from INR30,000 to INR78,000 based on the solar plant's capacity:



For capacities up to 2 kW, the subsidy is INR30,000 per kW.



For additional capacity up to 3 kW, the subsidy is INR18,000 per kW.



The total subsidy for systems larger than 3 kW is capped at INR78,000.



Exhibit 25:

Rooftop solar scheme – key details

Mode

Through Tender

Through National Portal

for Rooftop solar

Project capacity in

Individual Household

1-3kW

Above 3-10 kW

1-3kW

Above 3-10 kW

Revised CFA for

General States/UTs

INR18,000/kW

INR9,000/kW

INR18,000/kW

INR9,000/kW

Revised CFA for Special

Applicability

category States/UTs

INR20,000/kW



For all Future bids & bids which are

scheduled to be closed after 15 days

INR10,000/kW

of issuance of revised rates

INR20,000/kW



For all claims submitted in National

Portal for Rooftop Solar Panel after

INR10,000/kW

issuance of revised rates

Source: CEA, MOFSL



Renewable purchase obligation (RPO)

requires all electricity distribution

licensees to buy or generate a minimum specified quantity of their requirements

from RE sources as per the Indian Electricity Act, 2003.

As per the Ministry of Power, there are separate sub targets allocated out of the

total target for wind, hydro and distributed energy. Total RPO in 2029-30 is

estimated to be 43.33% of the total electricity consumed.

By 2030, the GoI aims to achieve 500 GW of non-fossil-based generation

capacity.

Year

2024-25

2025-26

2026-27

2027-28

2028-29

2029-30

Wind RE

0.67

1.45

1.97

2.45

2.95

3.48

Hydro RE

0.38

1.22

1.34

1.42

1.33

Distributed RE

1.5

2.1

2.7

3.3

3.9

4.5

Other RE

27.35

28.24

29.94

31.64

33.1

34.02

Total RE

29.91

33.01

35.95

38.81

41.36

43.33

Exhibit 26:

RPO trajectory (%)

Source: Ministry of power, MOFSL

September 2024

Power Utilities: Thematic



Production-linked incentive (PLI) scheme:

The PLI scheme aims to achieve GW-

scale manufacturing capacity of high-efficiency solar PV modules in India,

thereby reducing import dependence in RE. The scheme was implemented in

two tranches. Tranche-I was approved in Apr’21 with an outlay of INR45b and

Tranche II was launched in Sep’22 with an outlay of INR195b.

Under the scheme, incentives are calculated as Sales Volume (Wp) × Base PLI

Rate, with actual PLI dependent on actual sales or maximum capacity awarded.

Maximum capacity awarded to one bidder is 50% of bid capacity or 2000 MW,

whichever is less, to accommodate at least three manufacturers under the

INR45b envelope.

Modules (MW)

4,000

737

8,737

6,000

3,400

3,000

6,000

4,800

1,000

2,000

2,400

1,000

4,000

39,600

48,337

Source: MNRE, MOFSL

Exhibit 27:

Manufacturing capacity allocated under the PLI scheme

Name of bidder

Shirdi Sai Electricals ltd

Reliance new energy solar ltd

Adani infrastructure Pvt Ltd

PLI Tranche I

Indosol

Reliance

First solar

Avaada

Waaree

ReNew

JSW

Grew

Vikram

AMPIN

Tata Solar Power

PLI Tranche II

Total



Approved list of module manufacturers (ALMM):

ALMM comprises two lists:

LIST-I for solar PV modules and LIST-II for solar PV cells. The initial ALMM list for

solar PV modules was released in Mar’21. Presently, 94 Indian manufacturers

have received approval under the list.

Only solar PV models with an efficiency of 19% or higher have been considered

for inclusion in List-I as per data from MNRE.

Crystalline-Silicon technology based

Solar PV Modules

20.00%

19.50%

19.00%

Gadmium Telluride Thin Film

technology based Solar PV Modules

19.0%

18.5%

18.0%

Source: MNRE, MOFSL

Exhibit 28:

Minimum module efficiency requirements for enlistment under ALMM

Category

Category I

Category ll

Category lll

Application/

Use

Utility / Grid Scale Power Plants

Rooftop and Solar Pumping

Solar Lighting



Green Energy Open Access Rules (2022),

which were notified in Jun’22, aim to

promote the generation, purchase, and consumption of green energy, including

energy from waste-to-energy plants, through open access.

Green open access will be available to all consumers. For non-captive

consumers, the minimum transaction limit will be 100 KW, while captive

consumers will not have any transaction limit. Additionally, consumers will

receive green certificates beyond their RPO requirements.

September 2024

Power Utilities: Thematic



The rules represent a significant stride toward India's goal of reducing emissions

by 45% by 2030.

Rising RE capacity, system upgrades driving capex in T&D



Transition to RE:

With the increasing shift toward RE sources, there is a growing

need to invest in transmission infrastructure to accommodate the decentralized

nature of RE generation and ensure reliable power delivery.

Infrastructure upgrades:

Aging infrastructure requires modernization to meet

current demands and integrate new technologies, such as smart grid systems, to

enhance efficiency and reliability.

Grid reliability concerns:

Instances of grid failure and tripping necessitate

investments in transmission infrastructure to improve resilience and prevent

disruptions in power supply.

Distance between generation and demand centers:

As power generation sites

are often far from major demand centers, substantial investments are required

in transmission networks to efficiently transport electricity.

Technological advancements driving cost reduction:

Ongoing technological

upgrades, such as the deployment of higher capacity lines and the reduction of

system losses, reduce transmission costs. Conversely, rising costs associated

with transporting coal, including the need for new rail infrastructure and general

inflation, further emphasize the importance of cost-effective transmission

solutions.

Overall, the transmission opportunity is estimated at USD30b by 2030.

Exhibit 29:

Capex outlook for India transmission sector

Business segment

Transmission Business

Subhead

Inter State

Intra State

Cross Border

International projects

Subtotal Transmission

Solar generation

Smart Metering Infrastructure

Data Centre Business

Subtotal Other Businesses

Estimated Capex

(INR/b)

1360

370

100

1905

150

170

2075

Source: PWGR, MOFSL

Other Business

Estimated Outlay up to year 2032

September 2024

Power Utilities: Thematic

Capacity growth, robust balance sheet drive 13% PAT CAGR in FY24-27



We believe that strong growth, healthy power demand, improved domestic coal

availability, freedom to import fuel if need be and lower credit costs are driving

13% PAT CAGR over FY24-27 for our coverage companies.

Following are the key factors driving PAT growth:

Strong capacity growth driven by RE:

Companies in our coverage universe have

laid out strong capacity growth plans with a strong focus on RE. JSWE plans to

significantly raise its total installed capacity to 20GW by FY30 from 7.5GW as of

1QFY25 end. Similarly, TPWR plans to raise its renewable capacity to 70% of

overall mix by 2030 from 41% now. Further, given ambitious power capacity

growth targets at the India level, the project pipeline has continued to evolve.

For NTPC, for example, another ~26 GW of thermal capacity has been

announced (given the government’s plan to add another 88 GW in thermal

capacity) and there is potentially some upside to even these numbers. For IEX,

we believe the launch of new products, such as long-dated contracts (up to 11

months), and the latest regulation relating to un-requisitioned surplus power to

be offered via exchanges are positive for IEX’s volume growth.

Exhibit 30:

Growth targets across companies

Particular

JSW Energy

NTPC

Tata Power

Growth targets



To become a 20 GW company and 40GWh Energy Storage by FY 30

Green Hydrogen Production, plant to be operational in 2025

Plan to have 60 GW RE Capacity by 2032 Visible RE pipeline of 20 GW

130 GW+ Capacity by 2032

Target to raise Renewable capacity to 70% of overall mix by 2030 vs. 38% at end-

1HFY24

Source: Company, MOFSL



Strong profit growth as new projects commercialize:

We build in notable

improvements in profitability for the five power utility stocks under our

coverage. Generation companies will see strong PAT growth, driven by 1) the

start-up of new capacities during FY24-27, 2) healthy PLF amid strong demand,

benign coal price outlook and improving domestic coal availability, and 3) a

strong merchant power price outlook. PWGR’s regulated equity base is expected

to clock a 4% CAGR over FY24-27, driven by the start-up of new projects. A

turnaround in fundamentals for companies in the last two years has also helped

them pay down debt (leading to savings in interest rates).

September 2024

Power Utilities: Thematic

Exhibit 31:

Interest expenses (INR b)

NTPC

Power Grid

Tata Power

119

FY22

FY23

FY24

118

JSW energy

117

124

FY20

FY21

106

FY25E

FY26E

FY27E

Source: Company, MOFSL



Turnaround in working capital; improved leverage situation:

Due to the

implementation of schemes such as LPS and a decline in the ACS-ARR gap, the

working capital situation across generation and transmission companies has

improved. Receivable days for NTPC/JSWE/TPWR declined to 71/32/44 in FY24

from 109/93/55 in FY20 on a consolidated basis. Lower working capital

requirements, in turn, have helped them cut borrowing costs and improve

profitability.

Exhibit 32:

Receivable days

NTPC

109

IEX

PWGR

109

5154

7170

FY22

FY23

FY24

FY25E

FY26E

FY27E

5862

52 44

45 48

Tata Power

JSW energy

104

FY20

FY21

Source: Company, MOFSL



Improvement of 1-8% in ROE across companies during FY19-27:

With an

improvement in profitability, ROE is set to rise for four of the five companies

under our coverage; (IEX is witnessing ROE erosion due to cash build-up on

balance sheet). The most significant improvement in ROE is seen in JSWE (~8%)

during FY19-27. For PWGR, despite some concerns about new TBCB projects

earning a lower 10-12% equity return vs. ~15% in regulated tariff mechanism

(RTM)-based projects, the consolidated ROE remains strong at ~19% over our

forecast period. For TPWR, although the improvement in ROE is limited, it is

worth noting that the ROE in FY24-27 is not dependent on coal business profits,

making it likely more sustainable.

September 2024

Power Utilities: Thematic

Key risks



Delays in the start-up of new projects:

The timely completion of generation and

transmission projects is vital for companies to achieve their earnings targets.

However, generation and transmission companies may face issues related to land

acquisition and right of way, leading to delays in projects. Project delays can also

be a result of supply chain issues, such as limited availability of key components

for project completion.

Lower-than-expected profitability in RE projects:

In the case of RE projects, the

tariff is fixed in advance for the life of the project, generally up to 25 years. While

there is no fuel price risk (like thermal projects without a fuel supply agreement),

RE projects have their own set of challenges, such as lower-than-expected PLF,

delays in transmission connectivity, cost overruns or a quicker-than-expected

decline in efficiency for solar panels/wind turbines.

Competition intensity has risen over the years:

Given the strong capex outlook,

companies across the sector have strong growth plans; hence, competition

intensity has risen over the years. Heightened competition is already leading to

concerns over the profitability of TBCB projects. Similarly, ROE on plain vanilla

solar/wind projects, which are simpler to execute, is likely to be lower at 12-15%

vs. more complex round-the-clock projects such as hybrid or PSP.

Price volatility for key commodities and components:

The sharp rise in prices of

key metals (e.g., copper, aluminum and HRC steel) or key components (e.g., solar

modules) impacts overall project costs and thus equity IRRs for projects. Volatility

in coal prices can impact plants where fuel cost pass-through is not present. High

coal prices may also invariably push merchant power prices higher, thus softening

the volume growth outlook for power exchanges such as IEX.

Insufficient domestic solar module capacity:

India has an aggressive target of

increasing its RE installed capacity base to 500GW by 2030 from the current

~192GW. From 1st Apr’24, for central/state projects, only domestically

manufactured solar modules can be used. However, the pace of domestic solar

module manufacturing may not be able to keep up with demand, leading to

delays in project execution.

Market coupling:

For IEX, the implementation of market coupling remains a key

risk to watch out for. Considering its dominant market position, IEX could suffer

the highest volume loss among the three exchanges should market coupling be

implemented. Market coupling could potentially diminish the liquidity advantage

enjoyed by IEX and result in heightened competition, leading to a reduction in

fees. In a tight demand-supply situation, higher spot power prices than bilateral

prices would also be a negative factor for volume outlook and can lead to lower-

than-expected earnings delivery.

September 2024

Power Utilities: Thematic

Valuation and view

Strong share price performance across the board:

On a one-year basis, the five

utility stocks within our coverage universe are up 1-84%. All five stocks have

outperformed the Nifty, which has increased 27% in the last one year. The

strong price performance was driven by the following factors:



Strong capacity growth outlook:

Utility companies, such as JSWE, TPWR, PWGR

and NTPC, have outlined aggressive growth plans up to 2030 given the strong

power demand outlook and rising peak demand. As per our estimates, the five

power utility companies are expected to clock a 6-25% EPS CAGR over FY24-27.

For power exchanges (e.g., IEX), healthy power demand and a strong capacity

outlook bode well for power volumes traded on the exchange.



Turnaround in balance sheet and cash flow situation:

The implementation of

LPS has helped generation companies recover dues from distribution

companies, leading to an improvement in net working capital cycle and lower

interest costs. Allowing companies to blend up to 6% imported coal has helped

increase load factors and augment operating cash flows.



Exhibit 33:

ND/Equity and ND/EBITDA (INR m) across our coverage universe

NTPC

Power

Grid

Tata

Power

JSW

Energy

IEX

ND/EBITDA

ND/Equity

ND/EBITDA

ND/Equity

ND/EBITDA

ND/Equity

ND/EBITDA

ND/Equity

ND/EBITDA

ND/Equity

FY21

6.7

1.8

3.9

2.0

5.5

1.6

2.6

0.5

-0.2

-0.1

FY22

5.8

1.7

3.6

1.8

5.4

1.6

1.8

0.4

-0.6

-0.3

FY23

4.5

1.4

3.0

1.5

4.8

1.1

6.0

1.1

-0.2

-0.1

FY24

4.6

1.4

3.2

1.6

3.6

1.0

4.8

1.2

-0.5

-0.2

FY25E

4.0

1.3

2.7

1.4

3.7

1.2

4.1

1.4

-0.9

-0.3

FY26E

3.8

1.2

2.4

1.3

3.7

1.2

4.1

1.5

-1.2

-0.4

FY27E

3.6

1.2

2.1

1.2

4.1

1.3

4.5

2.0

-1.3

-0.5

Source: Company, MOFSL



Improving core profitability:

For companies like TPWR, the core earnings

outlook (excluding commodity profits) remains robust as new capacity begins

operation. TPWR has also witnessed a reduction in losses in the Mundra plant

with the imposition of Section XI, thereby lowering near-term earnings volatility.

Increasingly, for companies across the board, new capacity operation in the

future is RE, which has better earnings and cash flow visibility.



Rerating driven by change in the business mix:

India’s goal to have an installed

RE capacity base of 500 GW by 2030 means the business mix is changing for

companies across the value chain. Generation companies are investing in RE,

which has a strong capacity growth outlook with virtually no fuel price risk and

high visibility of long-term cash flows. For transmission companies, equity IRR on

RE projects at 12% is lower than that on RTM projects, but the opportunity size

is significant.



Capex super cycle is just beginning:



Given the robust capacity expansion plan, power companies have guided a strong

growth in capex over FY25-26 and beyond in the 4QFY24-1QFY25 conference

calls. PWGR will look to raise its capex to INR150b in FY25 from INR125b in FY24.

In fact, this number remains low given the massive INR2.07t bid pipeline to be

September 2024

Power Utilities: Thematic

awarded by 2032. For JSWE, the capex run rate is expected to pick up to

~INR150b in FY25, as it targets 20GW capacity. TPWR too plans to raise its capex

to INR150-200b in the coming years from INR120b at present.



Will rich valuations meet earnings slippage?

Admittedly, valuations are

significantly above their historical levels given the robust multi-year capex outlook.

As such, delays in the commissioning timelines of new projects, higher-than-

expected competitive intensity, or strong commodity price volatility can create

potential risks worth monitoring.



Valuations (vs. Nifty) expensive on a historical basis:

NTPC, for the last 10 years,

has traded at an average 46% discount to the Nifty (on a P/E basis), while it is

currently trading at a 22% discount. Similarly, PWGR has historically traded at a

45% discount to the Nifty, while it is currently trading at a 20% discount. The only

exception to this trend is IEX, which has traded at a 71% premium since listing but

is currently trading at a 120% premium.

Exhibit 34:

Current premiums/discounts to Nifty vs. the last 10-year average

Sep-24

Average

120% 71%

-22%

-46%

NTPC

IEX

97%

-20%

-45%

45%

-10%

TPWR

Source: Bloomberg, MOFSL

JSW

PWGR

Exhibit 35:

Global peer comparison

Global Company Name

NextEra Energy Inc

China Three Gorges Renewables

Iberdrola SA

China Longyuan Power Group Cor

American Electric Power Co Inc

Xcel Energy Inc

E.ON SE

RWE AG

Terna - Rete Elettrica Naziona

RoE (%)

EV/EBITDA (x)

PE (x)

PB (x)

MCap

USD b CY24E CY25E CY26E CY24E CY25E CY26E CY24E CY25E CY26E CY24E CY25E CY26E

170.1

117.1

86.3

85.9

54.4

35.8

35.0

23.1

16.1

13.2

9.0

11.5

9.9

11.3

10.7

19.1

6.1

14.6

13.5

9.5

10.6

10.2

11.2

10.8

16.8

4.6

13.3

13.8

9.9

11.0

10.2

11.3

10.8

15.4

4.9

13.9

15.9

11.3

9.6

9.2

11.9

11.4

8.1

6.1

11.0

14.2

9.7

9.5

8.4

11.0

10.3

7.8

6.5

10.5

13.5

8.6

8.9

7.7

10.3

9.3

7.5

5.9

9.6

24.3

14.8

16.2

15.7

18.2

18.0

11.9

11.3

16.1

22.5

13.0

15.7

14.4

17.1

16.7

12.0

14.5

16.6

20.8

11.7

14.8

13.0

16.1

15.6

12.0

13.0

15.5

3.6

1.4

1.9

1.5

2.1

2.0

0.7

2.5

2.9

1.2

1.7

1.4

1.9

1.8

2.0

0.7

2.2

2.7

1.1

1.6

1.3

1.8

1.7

1.9

0.6

2.2

Source: Bloomberg, MOFSL

Exhibit 36:

Domestic peer comparison

Company Name

NTPC

Power Grid Corp

Tata Power Co

JSW Energy

IEX

ROE (%)

MCap

Upside/

Rating

(INRb)

(INR) (Downside) FY25E FY26E

4,111 Neutral 450

3,172 Buy 425

1,417 Buy 530

1,283 Buy 917

207 Neutral 226

10%

24%

19%

16%

-5%

13.6

19.1

14.7

13.3

35.3

14.2

19.1

15.8

13.8

35.3

EV/EBITDA (x)

FY25E

11.4

10.2

14.4

19.7

46.7

FY26E

10.5

9.6

13.1

17.5

38.7

PE (x)

FY25E

18.1

18.6

28.3

43.7

56.2

FY26E

16.0

17.8

23.8

37.6

47.1

PB (x)

FY25E

2.4

3.5

4.0

5.5

18.2

FY26E

2.2

3.3

3.6

4.9

15.3

Dividend Yield (x)

FY25E

2.4

3.4

0.6

0.3

0.9

FY26E

2.6

3.5

0.7

0.4

1.1

Source: Bloomberg, MOFSL

September 2024

Power Utilities: Thematic

Valuation methodology across stocks



NTPC:

Our TP of INR450 implies 5% upside vs. CMP. Our TP is based on valuation

of INR266 for the standalone business at a Dec-26 PB of 2.5x, value of

INR24/INR64 for other subsidiaries and JV/associates at Dec-26 PB of 2.5x, value

of INR91 for the renewables business at 14x FY27 EV/EBITDA.

PWGR:

Our TP of INR425 implies 27% upside from the current level. We derive

the TP based on an Dec-26 EBITDA and an EV/EBITDA multiple of 11x which we

think is reasonable though at the higher end of the historical range.

TPWR:

Our TP of INR530 is derived by valuing: 1) the regulated business at 1.5x

equity, 2) renewables business at 14x FY27E EBITDA, 3) coal segment is valued

based on equity with a 1.5x multiple of FY24 Book Value, 4) pumped storage

segment is valued at 1x PB and other segments are also valued at 1x PB, and 5)

Cash and investments add INR46/share.

JSWE:

Our TP of INR917 implies 16% upside vs. CMP. We value JSWE's core

business at 15x Dec-26 EBITDA, with the stake in JSW Steel valued at a 25%

discount to the current market price.

IEX:

We initiate coverage on IEX with a Neutral rating and a TP of INR226. We

value the business at Dec-26E EPS of 5.6 with a PE multiple of 40x.

Exhibit 38:

JSWE 1-yr FWD PB

Exhibit 37:

JSWE 1-yr FWD PE

P/E (x)

Min (x)

Avg (x)

+1SD

Max (x)

-1SD

P/B (x)

Min (x)

5.0

Avg (x)

+1SD

Max (x)

-1SD

80.0

60.0

40.0

20.0

0.0

4.7

2.7

59.9

30.9

6.6

7.0

41.7

18.8

3.8

2.5

1.3

0.0

4.7

1.7

0.7

0.5

Source: Company, MOFSL

Exhibit 39:

IEX 1-yr FWD PE

P/E (x)

Min (x)

Avg (x)

+1SD

Max (x)

-1SD

Exhibit 40:

IEX 1-yr FWD PB

P/B (x)

Min (x)

Avg (x)

+1SD

Max (x)

-1SD

68.1

44.2

29.1

19.6

9.3

8.7

14.4

33.7

46.1

23.1

18.7

16.5

Source: Company, MOFSL

September 2024

Power Utilities: Thematic

Exhibit 41:

NTPC 1-yr FWD PE

P/E (x)

21.0

17.0

13.0

9.0

Min (x)

Exhibit 42:

NTPC 1-yr FWD PB

Avg (x)

+1SD

Max (x)

-1SD

P/B (x)

Min (x)

2.4

1.8

1.2

Avg (x)

+1SD

Max (x)

-1SD

17.4

17.0

12.5

10.1

7.8

6.0

2.3

1.5

1.2

0.9

2.3

0.6

0.0

0.6

5.0

Exhibit 43:

PWGR 1-yr FWD PE

P/E (x)

Min (x)

21.0

17.0

13.0

9.0

5.0

Exhibit 44:

PWGR 1-yr FWD PB

Avg (x)

+1SD

Max (x)

-1SD

P/B (x)

Min (x)

3.6

2.8

Avg (x)

+1SD

Max (x)

-1SD

18.8

12.7

10.6

8.5

6.7

18.2

3.4

2.1

1.7

1.2

2.0

1.2

0.4

1.4

Exhibit 45:

TPWR 1-yr FWD PE

40.0

30.0

Exhibit 46:

TPWR 1-yr FWD PB

Avg (x)

+1SD

Max (x)

-1SD

P/E (x)

Min (x)

33.4

30.8

P/B (x)

Min (x)

4.8

3.6

Avg (x)

+1SD

Max (x)

-1SD

4.1

2.5

1.7

0.8

0.4

3.7

22.8

20.0

10.0

0.0

16.3

2.4

1.2

0.0

9.7

5.9

Exhibit 47:

Nifty 1-yr FWD PE

26.0

22.0

18.0

14.0

P/E (x)

Min (x)

Avg (x)

+1SD

Max (x)

-1SD

Exhibit 48:

Nifty 1-yr FWD PB

5.4

4.4

P/B (x)

Min (x)

Avg (x)

+1SD

Max (x)

-1SD

22.2

19.8

17.9

16.0

13.2

21.3

3.4

2.4

1.4

3.0

2.4

3.3

2.7

1.9

3.4

10.0

Source: Company, MOFSL

September 2024

Power Utilities: Thematic

NTPC (NTPC IN)



We initiate coverage on NTPC with a Neutral rating and SoTP-based TP of

INR450. NTPC, via its RE subsidiary NTPC Green Energy Limited (NGEL), is a play

on India’s aim to expand its RE capacity to 500GW by 2030 (FY24: ~192GW).

We build in a 3% CAGR in standalone-regulated equity for the FY24-27E period.

NTPC is projecting an annual group capex of INR350-500b over the next 2-3

years (FY24: INR 340b).

Given its solid credit rating, NTPC’s funding cost is ~1-1.5% lower vs. peers and

this is a formidable advantage for the company while bidding for RE projects

where the debt-to-equity ratio tends to be 80:20.

At FY27E P/E of 14x and PB of 1.9x, valuations are reasonable, especially given

the strong growth outlook for both thermal and RE businesses. However, NTPC’s

FY27E dividend yield at 2.6% compares poorly with PWGR’s 3.5%.

We value the standalone business at 2.5x Dec’26E PB and RE business at 14x

FY27E EV/EBITDA, leading to a value of INR450/share.

Power Grid (PWGR IN)



We initiate coverage on PWGR with a BUY rating and a TP of INR425. We assess

a total transmission opportunity of INR2t in the Indian power sector, and with

~50-60% market, PWGR remains the leading player to tap into this opportunity.

Capex and capitalization trends are just picking up for PWGR, with consolidated

capex guided to rise 20% in FY25 and consolidated capitalization likely to double

in FY25.

Despite virtually no commodity risk/minimal execution risk, PWGR boasts a

higher dividend yield (FY26: 3.5%) vs. other transmission/city gas utilities (GAIL,

GSPL, IGL, MGL, Gujarat Gas), which protects downside despite the stock trading

at a multi-year high 1-year fwd PE of 18x.

Tata Power (TPWR IN)



We initiate coverage on TPWR with a BUY rating and our SoTP-based TP of

INR530. TPWR is an integrated power utility company with presence across

thermal and renewable power generation, transmission and distribution, and

solar module manufacturing.

TPWR management aims to double EBITDA and PAT by FY27 (vs. FY23) as TPWR

allocates 45% of the INR600b capex over FY24-27 to RE-related businesses.

The outlook beyond FY27 also remains optimistic given the INR40t investment

opportunity in the Indian power sector in the FY24-32 period, in our view.

TPWR is trading at FY26E EV/EBITDA of 13x vs. the historical average of 10x,

which we believe is only a modest premium given a sharp turnaround in

leverage situation, guidance of 90% earnings from core business by FY27 (FY23:

40%) and growing income streams from module manufacturing, utility-scale RE

projects and a burgeoning solar rooftop business.

Our SOTP-based TP of INR530 values the RE business at 14 FY27E EV/EBITDA

and the coal and regulated businesses at 1.5x/2.5x FY27E PB, respectively. A

robust 14% CAGR in PAT over FY24-27 should help sustain its valuations, in our

opinion.

September 2024

Power Utilities: Thematic

JSW Energy (JSW IN)



We initiate coverage on JSWE with a BUY rating and a TP of INR917. JSWE is a RE

generation-focused play and its installed RE capacity is expected to rise to

9.8GW by CY24 end (FY24: 7.3GW) and further to ~17GW by FY27 end.

The group aims to increase its installed RE capacity to 20GW by 2030; however,

we strongly believe that it will achieve this target before time, given 4.9GW of

MoU signed with JSW Steel and a significant step-up in bid awards by SECI for RE

projects recently. Further, JSWE’s wind asset expertise places it in a favorable

position as more lucrative opportunities shift toward RTC/hybrid projects over

plain vanilla RE projects.

JSWE is trading at FY26E EV/EBITDA of ~16x. While valuations are not

inexpensive, they could be sustained provided key projects are executed on

time and within budget and the installed capacity outlook continues to improve.

We value JSWE’s core business at 15x Dec’26E EBITDA and its stake in JSW Steel

is valued at a 25% discount to CMP, leading to a TP of INR917/share.

Indian Energy Exchange (IEX IN)



We initiate coverage on IEX with a Neutral rating and a TP of INR226. IEX is an

electricity exchange with an 84% market share in total exchange-traded volumes

in FY24. It has delivered a volume CAGR of 15% during FY13-24.

The launch of new products (e.g., long-dated contracts), rising FDRE projects

and growth in RE certificates will boost its volume growth outlook.

The 11-month contract segment represents a significant market opportunity,

with ~40 BUs of transactions happening in the bilateral market and assuming

10% share of this market in the initial year, it adds 4% to FY24 volumes, we

estimate.

However, the potential implementation of market coupling is a key regulatory

overhang that could dampen IEX’s growth prospects given its dominant market

share.

Our TP implies an FY26E P/E of 46x vs. the current FY26E P/E of 42x.

September 2024

Power Utilities: EmPOWERING INDIA!

Power Utilities: Thematic

NTPC

PG37

Power Grid

PG55

Tata Power

PG73

JSW Energy

PG90

Indian Energy Exchange

PG105

September 2024

Initiating Coverage | Sector: Power Utilities

Power Utilities: Thematic

NTPC

BSE Sensex

84,929

S&P CNX

25,939

CMP: INR406

TP: INR450 (+10%)

Neutral

Energy transition play with expanding project pipeline



Stock info

Bloomberg

Equity Shares (m)

M.Cap.(INRb)/(USDb)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

12M Avg Val (INR M)

Free float (%)

NTPC IN

9697

4110.9 / 49.2

432 / 228

0/17/46

5984

48.9



Financial Snapshot (INR b)

Y/E March

FY24 FY25E FY26E

Sales

1,785.0 1,913.5 2,050.5

EBITDA

497.5

561.7

615.0

Adj. PAT

213.3

227.1

256.4

EPS (INR)

22.0

23.4

26.4

EPS Gr.%

24.6

6.5

12.9

BV/Sh. (INR)

165.7

178.7

193.8

Ratios

Net D:E

1.4

1.3

1.2

RoE (%)

13.9

13.6

14.2

RoCE (%)

7.4

7.7

8.1

Payout (%)

35.2

43.2

41.1

Valuation

P/E (x)

19.3

18.1

16.0

P/B (x)

2.6

2.4

2.2

EV/EBITDA (x)

12.9

11.4

10.5

Div. yield (%)

1.8

2.4

2.6

FCF yield (%)

1.1

5.0

3.5

Shareholding pattern (%)

Jun-24 Mar-24 Jun-23

As On

51.1

Promoter

27.7

30.3

DII

17.7

17.9

15.8

FII

3.6

3.4

2.8

Others

FII Includes depository receipts

Stock performance (one-year)



We initiate coverage on NTPC with a Neutral rating and SoTP-based TP of

INR450. NTPC, via its renewable energy (RE) subsidiary NTPC Green Energy

Limited (NGEL), is a play on India’s aim to expand its RE capacity to 500GW by

2030 (FY24: ~192GW). NTPC also recently announced its intent to add 26GW of

brownfield capacity out of the government’s target to add 80GW in thermal

capacity. NTPC is also set to participate in India’s plan to add 22GW of nuclear

capacity by 2032 as the company will break ground on its first nuclear project

(2.8GW) by 2HFY25.

While IRR for plain vanilla RE projects has come off, new thermal and nuclear

capacity will be on a regulated return basis and will support the ROE profile. We

build in a 3% CAGR in standalone-regulated equity for the FY24-27 period. NTPC

is projecting an annual group capex of INR350-500b over the next 2-3 years

(FY24: INR 340b).

Given its solid credit rating, NTPC’s funding cost is ~1-1.5% lower vs. peers and

this is a formidable advantage for the company while bidding for RE projects

where the debt-to-equity ratio tends to be 80:20.

Much of NTPC’s re-rating in the past 1 year, we believe, is attributable to an

evolving RE pipeline and the planned listing of RE business, unlocking value for

NTPC shareholders. We currently value the RE business at 14x FY27E

EV/EBITDA, leading to a value of INR91/share; we believe this valuation largely

captures the value from the current project pipeline. As such, we believe IPO

upside is already largely priced in and is not a significant catalyst any more.

Excluding NGEL, NTPC is trading at FY26E PB of 1.6x, which is reasonable, in our

view. However, we believe the holding company discount after listing is hard to

predict and could be a key investor concern in coming months. Also note that

the RE IPO pipeline has continued to evolve and the overall valuation even for

TPWR/JSWE is anchored to RE projects. Investors may show lower appetite (vs.

now) for NTPC after NGEL listing.

At FY26E P/E of 16x and PB of 2.2x, valuations are reasonable, especially given

the strong growth outlook for both thermal and RE businesses. However,

NTPC’s FY27E dividend yield at 2.6% compares poorly with PWGR’s 3.5%. We

value the standalone business at 2.5x Dec’26E PB and RE business at 14x FY27E

EV/EBITDA, leading to a value of INR450/share.

26GW thermal capacity is medium-term growth driver



Given the strong power demand outlook and slower-than-required RE

installed capacity addition, new investment opportunities have emerged

in the thermal sector. NTPC recently announced its intent to add 26GW of

thermal capacity out of the 80GW estimated to be required.

Potentially, NTPC may have to step up and do additional thermal projects

beyond the initially committed 26GW if required. As of Jul’24, NTPC has

~9.5GW of thermal capacity under-construction and another 8GW in the

tendering phase. By 2QFY25, the company expects to commission 2-

2.5GW, leaving about 24GW still under-construction.

September 2024

Power Utilities: Thematic

Announces maiden foray into nuclear in JV with NPCIL



NTPC is poised to advance its nuclear power initiatives as it will start the

construction of its first nuclear project of 2.8GW in Mahi Banswara, Rajasthan,

in Sep’24. This project is a joint venture between NPCIL (51%) and NTPC (49%)

and marks NTPC's entry into nuclear power.

The government aims to build 22GW of nuclear power capacity by 2032 for an

estimated capex of INR170-180m per MW. As such, assuming a 25% share of the

total nuclear capacity, NTPC's investment opportunity in this sector could be

worth INR990b.

NTPC is in the process of listing its green energy business, which is held under

NTPC Renewable Energy Ltd., which in turn is a subsidiary of NGEL (a subsidiary

of NTPC).

As per our understanding, the IPO could materialize in 1HCY25. NGEL currently

has RE capacity (operational + under construction + pipeline) of 23GW and plans

to raise it to 60GW by 2031-32, including reaching 5GW electrolyzer capacity for

Green Hydrogen.

We currently value the RE business at 14x FY27E EV/EBITDA, leading to a value

of INR91/share. We believe much of NTPC’s 72% run-up in the last 1 year is

attributable to a burgeoning RE project pipeline and the planned listing of its RE

business. As such, while we remain positive on the listing of the RE business, we

believe IPO upside is largely priced in.

Excluding NGEL, NTPC is trading at FY26E PB of 1.6x, which we think is

reasonable given its solid return profile and a robust pipeline of non-RE projects.

However, we believe the holding company discount after listing is hard to

predict and investors may prefer investing in NGEL over NTPC for RE exposure.

After NGEL listing, NTPC will offer exposure primarily to an evolving brownfield

thermal pipeline (26GW), possibility of nuclear projects (22GW India potential)

and pumped storage projects. Thermal and nuclear projects will be on the

regulated returns basis (and so still attractive), while pumped storage projects

too are expected to earn an attractive IRR in high teens.

However, the gestation period for all three kinds of projects will be 4-6 years

and these projects could entail risks such as commodity prices, land acquisition

or an inability to tie up PPA given higher per unit power costs vs. RE projects.

Also, for segments such as pumped storage projects, while returns are

attractive, investors may prefer investing via private players such as

TPWR/JSWE.

We also highlight that 18 months ago, there were limited RE players in the

Indian market. However, the RE IPO pipeline has continued to evolve and even

for TPWR and JSWE incremental capex allocation is heavily tilted toward RE

projects. For TPWR and JSWE, we estimate 62%/69% of our SOTP is derived

from the RE business and we think the proportion of RE valuation in the overall

valuation will only rise from hereon for both these companies.

We believe all these factors together could contribute to a substantial holding

company discount, which is a risk worth watching out for NTPC.

NGEL listing could offer limited further upside



Excluding NGEL, NTPC trading at 1.6x FY26E PB; holdco discount a risk



September 2024

Power Utilities: Thematic

Low funding cost vs. peers; thermal project economics remain attractive



Given its solid credit rating, NTPC’s funding cost is ~1-1.5% lower vs. private

players and this is a formidable advantage for the company while bidding for RE

projects where the debt-to-equity ratio tends to be 80:20. The development of

new thermal capacity will be on a regulated return model, with a projected cost

of INR100m per MW.

While investors focus on RE, brownfield coal projects remain attractive

investment opportunities with guaranteed 15% ROE, and NTPC is the only

sizeable player in the thermal segment.

NTPC continues to step up backward integration as its coal mining output is

slated to rise to 50MT in the next three years from 34MT in FY24, providing

greater visibility and control over coal availability for thermal operations.

Building in 9% PAT CAGR over FY24-27 driven by RE, thermal



NTPC is projected to achieve a PAT CAGR of 9% over FY24-27, driven by strategic

initiatives in thermal, renewable and nuclear energy sectors. The aggressive

commissioning schedule for RE projects in NGEL is a key contributor to earnings

growth. The company has announced plans to add 26GW of brownfield

capacity, contributing to the government's target of 80GW in thermal capacity,

though we believe much of this capacity will likely be commissioned after FY27.

While investors focus on RE, brownfield coal projects remain attractive

investment opportunities with guaranteed 15% ROE, and NTPC is the only

sizeable player in the thermal segment.

Valuation and risks



Our TP of INR450 implies 5% potential upside. NTPC is currently trading at FY26E

P/E of 16x and P/B of 2.2x, above its historical one-year fwd average P/E of 9.9x

and P/B of 1.1x. NTPC’s FY27E dividend yield at 2.6% is lower than PWGR’s 3.5%.

We value the standalone business as well as other subsidiaries and JV at

Dec’26E PB of 2.5x. We value the RE business at 14x FY27E EV/EBITDA, leading

to a value of INR91/share.

Key risks to our earnings estimates and TP stem from: 1) slower-than-expected

commissioning of key projects, 2) holding company discount after NGEL listing,

3) weaker-than-expected return profile for renewable projects, 4) mismatch

between generation and transmission commissioning for key projects, 5) limited

availability of domestic module and cell capacity leading to delayed beginning

for RE projects.

September 2024

Power Utilities: Thematic

STORY IN CHARTS

NTPC's Capacity pipeline at 1QFY25 end (GW)

130

8.4

3.6

Commissioned

Under Construction Under Tendering

NTPC's RE Pipeline (GW)

11.2

Installed Capacity

Under Construction

Target by FY32

RE share in valuation for key power utilities

Renewable

Others

Standalone Closing Regulated Equity - Generation (INR b)

877

38%

80%

62%

20%

NTPC

Tata Power

JSWE

FY 21

FY 24

69%

947

31%

663

FY 27E

Consolidated ROE

Consol ROE (%)

13.1

10.3

13.3

13.0

13.9

12.1

13.6

14.2

Consolidated Net Debt/EBITDA

Net Debt/EBITDA

7.1

6.7

5.8

4.5

4.6

4.0

3.8

3.6

FY19 FY20 FY21 FY22 FY23 FY24 FY25E FY26E FY27E

September 2024

Power Utilities: Thematic

Standalone Commercial Capacity

Standalone Commercial capacity (GW)

63.2

Standalone Gross Generation (mk/whr)

Standalone Gross generation

344

362

395

419

425

45.7

49.7

51.7

54.6

56.4

59.1

61.3

274

260

271

299

FY19 FY20 FY21 FY22 FY23 FY24 FY25E FY26E FY27E

Standalone Calculated avg. PLF (%)

75.0

ROE (%) and ROCE post tax (%)

Consol RoE (%)

69.4

62.1

61.0

64.2

70.8

71.5

78.0

7.5

7.4

8.1

6.4

4.8

6.1

7.7

8.1

8.2

FY19 FY20 FY21 FY22 FY23 FY24 FY25E FY26E FY27E

FY19

FY20

FY21

FY22

FY23

FY24 FY25E FY26E FY27E

Quarterly Consolidated EBITDA run rate

Consol EBITDA (INR/b)

144.8

142.0

128.6

108.0

119.4

113.6

140.2

110.1

114.3

89.8

126.8

88.6

105.1

Consolidated Debt/Equity

Consol Debt/Equity

1.7

1.8

1.7

1.4

1.3

1.2

September 2024

Power Utilities: Thematic

Company overview



NTPC is India's largest power generation company, founded in Nov’75. With a

profit of INR180b (2023-24), it plays a vital role in India's power sector,

accounting for a substantial 24% of the country's total power generation.

Established with a strong foundation in thermal power, NTPC operates an

extensive portfolio of coal-based, gas-based, and hydroelectric power plants.

The company has significantly expanded into RE to support India's clean energy

transition. It also engages in power trading to optimize generation and stabilize

the grid.

NTPC is foraying into nuclear power to diversify its energy portfolio and

minimize its carbon footprint. The company aims to replicate the success it has

achieved in thermal power, focusing on establishing a strong base load capacity

to support long-term energy needs.

NTPC is set to become a 130GW+ company by 2032, of which 60GW+ will be RE

capacity.

Exhibit 49:

Breakup of NTPC group projects (GW) as of FY24 end

NTPC Owned

Coal

Gas/Liquid Fuel

Hydro

Renewables

Sub-total

JVs and Subs

Coal

Gas/Liquid Fuel

Hydro

Renewables

Sub-total

Total

Stations

in GW

53.8

0.8

0.5

59.1

in GW

8.3

2.5

2.9

3.1

16.8

75.9

Mix (%)

70.88

5.27

1.05

0.66

77.87

Mix (%)

10.94

3.29

3.82

4.08

22.13

100

Source: Company, MOFSL

Dominant player with sizeable market share



NTPC holds a dominant 17% share of India's installed power capacity and

contributes 24% of the country's total electricity generation. Installed capacity

has grown over the years from 47GW in FY16 to 76GW in FY24.

As of FY24, NTPC's installed capacity was 76GW, with an additional 21GW under

construction. The company aims to exceed 130GW by 2032.

For FY25, India targets a total electricity generation of 1,900BU, representing a

9.3% increase over FY24. This includes 1,445BU from thermal, 1,48BU from

hydro, 55BU from nuclear, 8BU from Bhutan imports, and 244BU from RE

sources (excluding large hydro).

NTPC's RE capacity reached 3.6GW by FY24, with over 8.4GW of projects under

construction and a pipeline of more than 11.2GW. The company is advancing

toward its goal of 60GW in RE capacity by 2032. By 2032, NTPC plans to achieve

a fossil and non-fossil energy mix of ~60:40.

September 2024

Power Utilities: Thematic

Exhibit 50:

NTPC total capacity growth over FY24-27 (GW)

FY24 Group capacity

FY25

FY26

FY27

Source: Company, MOFSL

NTPC to undertake additional brownfield thermal investment of 26GW



NTPC is set to play a crucial role in India’s thermal power sector, with plans to

contribute 26GW of the additional 80GW required. As of Jul’24, NTPC has

~9.5GW of thermal capacity under-construction and another 8GW in the

tendering phase. By 2QFY25, the company expects to commission 2-2.5GW,

leaving about 24GW still under-construction.

The development of new thermal capacity will be on a regulated return model,

with a projected cost of INR100m per MW. Potentially, NTPC may have to step

up and do additional thermal projects beyond the initially committed 26GW if

required.

Announces foray into nuclear in JV with NPCIL



NTPC is poised to advance its nuclear power initiatives as it will start the

construction of its first nuclear project of 2.8GW in Mahi Banswara, Rajasthan,

by Sep’24. This project is a joint venture between NPCIL (51%) and NTPC (49%)

and marks NTPC's entry into nuclear power.

In addition, NTPC is establishing NTPC Nuclear Power Company as a wholly-

owned subsidiary, signaling its commitment to expanding its nuclear footprint.

The company plans to explore and develop additional nuclear sites across

various states, aiming to replicate its success in thermal power.

The Indian government has a target of building 22GW of nuclear power capacity

by 2032 for an estimated capex of INR170-180m per MW. As such, assuming a

25% share of the total nuclear capacity, NTPC's investment opportunity in this

sector could be worth INR990b.

NGEL IPO a catalyst; but limited value unlocking scope now in our view



NTPC's wholly owned subsidiary, NGEL, was established on Apr’22 to advance

the company's RE initiatives. As part of NTPC's asset monetization scheme, NGEL

acquired 15 RE assets totaling 2,861 MW from NTPC's balance sheet via a

business transfer agreement. NGEL focuses on developing large-scale solar,

wind, and hybrid RE projects across India, including Gigawatt-scale RE parks

under the ultra mega renewable energy power park (UMREPP) scheme.

Additionally, green hydrogen initiatives are also managed under NGEL.

September 2024

Power Utilities: Thematic

Exhibit 51:

Breakup of NTPC group renewable projects (MW) as of FY24 end

Capacity (MW)

Commissioned

Solar

Wind

Small Hydro

Under Execution

Solar

Wind

Under Tendering

Solar

Wind

Total

NTPC

411

403

1,034

1,527

NGEL

2,725

2,675

1,394

1,086

308

200

4,319

NTPC-REL TDHC & NEEPCO

200

192

150

113

5,702

300

4,550

300

1,152

8,773

300

3,183

300

5,590

14,675

792

NTPC Group

3,528

3,283

213

8,430

6,970

1,460

9,355

3,765

5,590

21,313

Source: Company, MOFSL



In FY24, NGEL's total electricity generation was 5.74Bu and the company plans

to go public in FY25 with an IPO.

In FY24, NGEL had EBITDA/PAT of INR18.2b/INR3.4b, with an operational

capacity of ~3GW. In our SOTP, we estimate the value of NGEL as INR91/share.

We apply a 14x EV/EBITDA multiple to FY27 EBITDA to estimate the value of the

RE business.

Much of NTPC's re-rating in the past 1 year, we believe, is attributable to an

evolving RE pipeline and the planned listing of RE business, unlocking value for

NTPC shareholders. We currently value the RE business at 14x FY27E EV/EBITDA,

leading to a value of INR91/share; we believe this valuation largely captures the

value from the current project pipeline. As such, we believe IPO upside is

already largely priced in and is not a significant catalyst any more.

Excluding NGEL, NTPC is trading at FY26E PB of 1.6x, which is reasonable, in our

view. However, we believe the holding company discount after listing is hard to

predict. Also note that the RE IPO pipeline has continued to evolve and the

overall valuation even for TPWR/JSWE is anchored to RE projects. Investors may

show lower appetite (vs. now) for NTPC after NGEL listing.

Solid ramp-up in coal self-sufficiency to provide operational stability



NTPC has demonstrated impressive growth in its coal production capabilities,

achieving 34mt of coal production in FY24, a significant 48% increase from

23.20mt in FY23. NTPC’s cumulative investment in coal mining has increased

from INR81.8b by FY21 to INR107b by FY24. For FY25, the company projects

crossing 40mt in production and has a target to reach an annual production of

50mt in the next three years to bolster fuel security. In the long term, NTPC aims

to meet at least 25% of its coal requirements through its captive mines by FY30.

September 2024

Power Utilities: Thematic

Exhibit 52:

Coal Production has taken off in recent years

Coal Production (MMT)

FY21

FY22

FY23

FY24

FY25E

Source: Company, MOFSL



In terms of coal capacity planning, NTPC intends to tender ~10,400MW during

FY25. This will be followed by 3,200MW in FY26 and 1,600MW in FY27, totaling

15,200MW. Notably, this figure excludes the 1,600MW Singrauli 3 project

awarded to BHEL in 3QFY24. Of the total capacity, 53% will be implemented

directly by NTPC, while 47% will be through joint ventures and subsidiaries.

Sufficient coal availability has been instrumental in allowing NTPC to maintain

high PLFs at thermal plants. In FY24, NTPC’s coal stations achieved an average

PLF of 77.25%, outperforming the national average of 69.49% by ~8%.

Coal Supply (MMT)

ACQ

Captive /others

Imported

181.3

191.8

Exhibit 53:

Coal supply (MMT)

160.5

155.2

151.3

167.2

14.6

FY19

16.8

FY20

2.8

17.9

FY21

25.9

1.1

FY22

27.9

39.8

14.6

FY24

9.6

2.5

FY23

Source: Company, MOFSL

Aims to contribute to India’s 5mmt green hydrogen target



NTPC is also developing a 1,200-acre hydrogen hub in Pudimadaka, Andhra

Pradesh, and has partnered with Gujarat Pipavav for the export of ammonia.

NTPC is aggressively advancing its green hydrogen initiatives as part of its

commitment to a carbon-neutral economy. In Jan’23, NTPC inaugurated India’s

first green hydrogen blending facility at Kawas, Gujarat, achieving an 8% v/v

blend of green hydrogen in the PNG network, the highest blend achieved in

India to date.

The company is implementing several pilot projects, including the deployment

of five green hydrogen-powered buses in Leh by Jul’24 and another five in Delhi

by Dec’24. Additionally, NTPC has secured an agreement with the Indian Army

to establish a green hydrogen-based micro-grid, which is currently underway.

The company is actively pursuing net-zero emissions in its townships by the next

fiscal year, with green hydrogen projects managed under NGEL. NTPC is poised

to undertake significant new projects, reflecting a substantial increase in

capacity additions.

September 2024

Power Utilities: Thematic

Exhibit 54:

Key MOUs related to hydrogen domain

Sr.No.

MoUs

NGEL and GPPL (Gujarat Pipavav Port Limited) for land in Pipavav Port for Green Ammonia Project

NGEL and SCI (Shipping Corporation of India), for supply of green Methanol

NGEL and GSPC (Gujarat State Petroleum Corporation) for H2 blending in NG network and green mobility

NGEL and Nayara Energy for Production of Green Hydrogen

NGEL and HMEL (HPCL Mittal Energy Limited) for development of Green Hydrogen derivatives

NGEL and Government of Maharashtra for Green Hydrogen

NREL and Government of Gujarat for development of 5 GW GH2 technologies

NGEL and RVUNL (Rajasthan Rajya Vidyut Utpadan Nigam Ltd.) for development of Green Hydrogen and its derivatives

Source: Company, MOFSL

Growing international presence can be growth driver



NTPC has expanded its international footprint with several significant initiatives.

In FY24, the company commissioned its first overseas thermal power plant in

Bangladesh through its joint venture with Bangladesh Power Development

Board (BPDB), with a capacity of 1,320MW. Additionally, NTPC is developing a

solar power project in Sri Lanka, initially set at 50MW with potential expansion

to 120MW.

NTPC has also been appointed as the project management consultant for the

implementation of 6,620MW of power projects across 12 countries in Africa and

Latin America. Furthermore, the company is tasked with setting up solar

demonstration projects in 10 member countries of the International Solar

Alliance (ISA).

Capex set to rise meaningfully given ambitious capacity growth plans



NTPC's capex projections and historical spending demonstrate the company's

substantial investment in growth and development. By 2032, NTPC anticipates a

capex of ~ INR7t.

In FY24, NTPC incurred group capex of INR349b, slightly lower than INR352b

spent in FY23. Standalone capex for FY24 was INR193b vs. INR245b in FY23. For

FY25, NTPC has projected a standalone capital outlay of INR227b. Looking

ahead, the company expects an annual group capex range of INR350-500b over

the next 2-3 years.

As of FY24, NTPC invested INR107b in coal mine development.

Capex cycle drives stand-alone regulated equity CAGR of 3%



NTPC's standalone regulated equity stood at INR877b as of FY24, up 13% from

INR776b in FY23. Consolidated regulated equity was INR1,043b, up 11% from

INR941b as of FY23.

Going forward, we estimate a 3% CAGR in standalone regulated equity in the

FY24-27 period. NTPC is likely to commission 13.1GW of capacity over FY25-26.

This includes 6.7GW in FY25, comprising 2.7GW of thermal, 1GW of hydro, and

3GW of RE. In FY26, an additional 6.4GW is expected, with 1.4GW of thermal

and 5GW of RE capacity.

September 2024

Power Utilities: Thematic

Exhibit 55:

NTPC's group capex trend (INR b)

467

372

340

292

218

352

FY 22

FY 23

FY 24

FY 25E

FY 26E

FY 27E

Source: Company, MOFSL

Funding cost remains big advantage over peers



NTPC's consolidated finance cost as a percentage of gross debt is ~1-1.5% lower

vs. private peers. The lower finance cost bodes well for RE projects, where there

are no fuel costs involved, thus enhancing NTPC's competitive edge in the

sector.

For NTPC's thermal and hydro projects, the debt-to-equity ratio is typically

70:30. In contrast, for solar and wind projects, the ratio is set at 80:20. This

differentiated approach reflects the varying financial structures and risk profiles

associated with different types of energy projects.

ROE supported by nuclear, thermal



In the 1QFY25 earnings call, the management clarified that upcoming thermal

and nuclear projects will be on the regulated equity model.

NTPC is advancing its nuclear power and plans to establish a dedicated

subsidiary, NTPC Nuclear Power Company, to explore additional sites across

various states and replicate the success achieved in its thermal power sector.

This expansion aims to provide reliable base load power for the coming decades.

With the Indian government targeting 22GW of nuclear power capacity by 2032,

NTPC is positioned to secure a significant share of this market.

Under brownfield expansions, the company plans to add thermal capacity of

26GW to support grid stability amid increased variable RE infusion.

Of the 26GW thermal addition, 10GW is already under construction. This

strategic approach is designed to ensure stable base load support and is

expected to enhance NTPC's ROE by optimizing cost efficiency and leveraging

established infrastructure.

Risks



NTPC faces several risks associated with its coal-based operations and broader

strategic initiatives. Increasing climate risks could constrain growth in its core

coal business and heighten negative ESG reactions. As a government-owned

entity, NTPC may experience strategic directives that could potentially

disadvantage minority shareholders.

The company is also vulnerable to delays in the commissioning of its captive coal

mines and thermal and RE capacities. Such delays could impact operational

efficiency and growth prospects.

September 2024

Power Utilities: Thematic



NTPC's trade receivables are heavily dependent on the timely payments from

state discoms, which could pose a risk to its cash flow and financial stability.

Lower PLF at NTPC’s thermal power plants could reduce the overall efficiency

and profitability of its coal-based operations, exacerbating the company’s

financial and operational challenges.

Valuation

Our TP of INR450 for NTPC is based on:



Value of INR266 for the standalone business at Dec’26E PB of 2.5x.



Value of INR24 for other subsidiaries and INR64 for JV/associates at Dec’26E PB

of 2.5x.



Value of INR91 for the renewables business at 14x FY27E EV/EBITDA.

Exhibit 56:

SOTP valuation

Segment

Standalone

Other subsidiaries

JV & Associates

Renewable

Cash and equivalents

Target price

CMP

Upside/(Downside)

Regulated Equity (Dec-26E)

10,17,221

92,799

2,47,414

FY27 EBITDA

P/B

2.5

Value/Sh. (Rs)

266

450

429

Source: MOFSL

September 2024

Power Utilities: Thematic

SWOT analysis



Dominant thermal player

with installed capacity of

73GW and growing

renewable footprint

Low financing costs vs.

private sector peers

De-risked cost and

business model

Strong bargaining power

with customers and

suppliers due to large

scale



Government intervention

in pricing and operations

can disrupt efficiency and

decision-making

Compared to the growing

RE sector, NTPC's portfolio

is still heavily reliant on

coal



NTPC plans to have 60GW

RE capacity by 2032

Worsening peak power

deficits

Foray into green hydrogen

Monetisation of NGEL



Aggressive bidding for

RE projects can lower

IRR

Volatility in solar module

prices, changes in duty

structure

Delayed land execution

or transmission

connectivity for

upcoming projects

September 2024

Power Utilities: Thematic

Bull and Bear cases

Bull case

In our Bull case scenario, we anticipate heightened profitability at the

JV/associate level, driven by streamlined operations. Additionally, we foresee a

more proactive stance on capacity buildup of renewables alongside and model

an increased PLF-related incentive income.



We also raise the target PB ratio for the standalone business to 3.0x (base case:

2.5x) and value the renewable business at 18x EV/EBITDA given the quicker-

than-expected capacity ramp-up.



Based on the above assumptions, the company's bull case valuation would be

INR563/sh.



Bear case



In our Bear case scenario, we anticipate subpar execution in coal mining and

FGD projects, moderate PLF-related incentive income, and a delayed start for

some of the renewable projects slated to begin operations in FY25-27.



We also lower the target PB ratio for the standalone business to 1.5 (base case:

2.5x) and value the renewable business at 10x EV/EBITDA given the slower-than-

expected capacity ramp-up.



Based on the above assumptions, the company's valuation would be INR298/sh.

Exhibit 57:

Scenario analysis – Bull case

INR m

Net revenues

EBITDA

PAT

Target price (INR)

Upside (%)

FY25E

19,32,527

5,80,417

2,37,116

563

FY26E

21,04,116

6,67,290

2,87,540

FY27E

22,55,253

7,66,757

3,42,272

Exhibit 58:

Scenario analysis – Bear case

INR m

Net revenues

EBITDA

PAT

Target price (INR)

Downside (%)

FY25E

19,05,014

5,52,904

2,14,636

298

FY26E

20,40,765

6,03,940

2,34,614

FY27E

21,42,469

6,53,973

2,49,081

Source: MOFSL

September 2024

Power Utilities: Thematic

ESG initiatives

Environment



The company is dedicated to carbon sink development, utilizing afforestation

efforts as ‘sinks’ for emissions from power stations. NTPC aims to plant 10m

trees by 2026.

In FY23, specific water consumption decreased to 2.69 liters per kWh,

marking the fourth consecutive year of reduction.

The company is in the process of creating a vast Eco Park in the National

Capital, surpassing the size of New York's Central Park.

Social



NTPC extends a range of benefits, including post-retirement medical

benefits, paid childcare leave, comprehensive medical coverage, educational

support and housing assistance, and holistic support to its employees.

It also offers a provision for sabbatical periods, allowing employees to take a

break up to five years without the risk of losing their jobs.

NTPC showcases its dedication to shared parental duties by offering

extended parental leaves to all its employees, irrespective of gender.

It has dedicated 4,728 man-hours to human rights training.

Governance



The company has in place several policies to enhance integrity, ethics

& transparency with respect to governance.

NTPC has formulated a robust Anti-Bribery and Anti-Corruption

(ABAC) policy, aiming to uphold the highest ethical standards and

compliance with Indian laws, thereby ensuring the integrity of its

business operations.

September 2024

Power Utilities: Thematic

Management overview

Shri Gurdeep Singh, Chairman & Managing Director



Mr. Singh has been the CMD of NTPC since CY16. Before joining NTPC, he was

the MD of Gujarat State Electricity Company Ltd. He started his career at NTPC

as an Engineer Trainee in CY87.

He graduated in mechanical engineering from NIT Kurukshetra and completed

Management Education Program at IIM Ahmedabad. He has served as Co-chair

for the taskforce on Energy & Resource efficiency, B20 Italy CY21.

Shri Jaikumar Srinivasan, Director (Finance and HR)



Mr. Srinivasan was appointed as the Director (Finance) in Jul’22. He has more

than 30 years of experience in the Power and Mining sectors in State and

Central PSUs. He also has eight years of Board-level exposure.

He is a commerce graduate and also an Associate Member of the Institute of

Cost Accountants of India. Before his appointment at NTPC, he was the Director

(Finance) of NLC India Ltd.

Shri K. Shanmugha Sundaram, Director (Projects)



Mr. Sundaram joined NTPC as a graduate engineer trainee in CY88 and has over

35 years of diverse and versatile experience. He was actively involved in the

development of the first supercritical power project of NTPC at Sipat. He has

also worked in various capacities at the NTPC Darlipali Project.

He is an Electronics and Communication Engineering graduate from the Govt.

College of Technology, Coimbatore with PGDM in Strategy & Finance from MDI

Gurgaon.

Shri Ravindra Kumar, Director (Operations)



Mr. Kumar joined NTPC as a Graduate Engineer Trainee officer in CY89 and has

more than 34 years of diverse experience in commissioning, O&M, engineering,

and project management. He has also been the CEO of Patratu Vidyut Utpadan

Nigam Ltd.

He did B.Sc. (Engineering) in Mechanical Engineering from BIT Sindri in CY88.

Prior to his current role, he was the Officer on Special Duty (OSD) to Director

(Operations), NTPC.

Shri Shivam Srivastava, Director (Fuel)



Mr. Srivastava joined NTPC in CY88 and has over 34 years of experience. Prior to

his elevation to his current role, he was working as CGM and Business Unit Head

of Pakri Barwadih Coal Mining Project of NTPC.

He is a Mechanical Engineering graduate from Kamala Nehru Institute of

Technology, Sultanpur and Post Graduate in Business Management from MDI

Gurgaon. He also underwent a Leadership Management course at Harvard

Business School, Boston (USA).

September 2024

Power Utilities: Thematic

Financials and valuations

Consolidated Income Statement

Y/E March

Net Sales

Change (%)

Total Expenses

EBITDA

Depn. & Amortization

EBIT

Net Interest

Other income

PBT before EO

Regulatory inc./(exp)

EO expense (inc.)

PBT after EO

Tax

Rate (%)

Reported PAT

Minority

Adjusted PAT

Change (%)

Consolidated Balance Sheet

Y/E March

Share Capital

Reserves

Net Worth

Minority Interest

Total Loans

Deferred Tax Liability

Capital Employed

Gross Block

Less: Accum. Deprn.

Net Fixed Assets

Capital WIP

Goodwill

Investments

Curr. Assets

Inventories

Account Receivables

Cash and Bank Balance

Others

Curr. Liability & Prov.

Account Payables

Provisions & Others

Net Curr. Assets

Appl. of Funds

FY21

11,15,312

1.9

7,77,093

3,38,218

1,24,503

2,13,715

96,552

40,157

1,57,320

19,032

15,122

1,67,061

24,205

14.5

6,838.7

1,49,694

3,348

1,62,625

36.6

FY22

13,26,693

19.0

9,30,119

3,96,573

1,37,878

2,58,695

93,747

23,250

1,88,198

14,865

2,09,873

50,471

24.0

10,201.3

1,69,603

2,844

1,69,603

4.3

FY23

17,62,072

32.8

12,77,283

4,84,789

1,47,923

3,36,866

1,05,835

17,692

2,48,723

-4,131

2,31,377

67,961

29.4

7,797.7

1,71,214

2,088

1,71,214

0.9

FY24

17,85,009

1.3

12,87,537

4,97,472

1,62,036

3,35,436

1,19,407

26,650

2,42,679

10,002

2,65,061

68,092

25.7

16,356.0

2,13,325

5,206

2,13,325

24.6

FY25E

19,13,543

7.2

13,51,801

5,61,743

1,82,241

3,79,502

1,14,741

26,650

2,91,410

82,169

28.2

17,856.0

2,27,097

3,282

2,27,097

6.5

FY26E

20,50,540

7.2

14,35,548

6,14,992

1,99,513

4,15,479

1,14,723

26,650

3,27,406

90,411

27.6

19,356.0

2,56,351

4,411

2,56,351

12.9

(INR m)

FY27E

21,55,487

5.1

14,86,518

6,68,969

2,17,387

4,51,582

1,24,022

26,650

3,54,210

97,480

27.5

21,856.0

2,78,586

4,486

2,78,586

8.7

(INR m)

FY27E

96,967

19,48,803

20,45,769

56,310

25,90,167

1,40,619

48,32,866

51,02,334

17,54,913

33,47,421

6,80,100

2,47,914

12,15,528

1,57,057

3,15,817

1,72,249

5,70,404

6,58,097

1,23,455

5,34,642

5,57,431

48,32,866

FY21

96,967

11,60,418

12,57,385

35,237

23,16,425

88,119

36,97,166

27,35,469

7,03,017

20,32,452

10,58,803

1,05,893

7,81,756

98,096

3,16,724

43,878

3,23,058

2,81,737

88,064

1,93,673

5,00,018

36,97,166

FY22

96,967

12,56,771

13,53,737

37,604

23,47,202

99,560

38,38,103

30,89,597

8,40,367

22,49,230

10,01,477

1,06,262

7,98,241

1,01,393

3,26,413

44,581

3,25,854

3,17,108

1,13,620

2,03,488

4,81,134

38,38,103

FY23

96,967

13,73,265

14,70,232

39,305

22,10,924

1,17,522

38,37,981

33,92,828

9,88,584

24,04,244

8,91,790

1,39,348

10,34,372

1,42,404

3,27,511

49,485

5,14,972

6,31,773

1,13,562

5,18,211

4,02,599

38,37,981

FY24

96,967

15,10,126

16,07,093

44,130

23,50,403

1,40,619

41,42,245

37,45,108

11,55,772

25,89,336

8,76,645

1,58,846

11,65,440

1,80,191

3,46,372

68,473

5,70,404

6,48,022

1,13,380

5,34,642

5,17,419

41,42,245

FY25E

96,967

16,35,856

17,32,823

47,412

22,99,998

1,40,619

42,20,852

42,40,351

13,38,012

29,02,339

7,22,958

1,86,702

10,62,245

1,49,573

3,05,467

36,801

5,70,404

6,53,390

1,18,748

5,34,642

4,08,854

42,20,852

FY26E

96,967

17,82,393

18,79,360

51,823

23,57,686

1,40,619

44,29,488

45,82,593

15,37,526

30,45,068

7,42,550

2,16,058

10,82,803

1,54,846

3,13,889

43,665

5,70,404

6,56,989

1,22,347

5,34,642

4,25,814

44,29,488

September 2024

Power Utilities: Thematic

Financials and valuations

Ratios

Y/E March

Basic (INR)

EPS

Cash EPS

BV/Share

DPS

Payout (%)

Dividend yield (%)

Valuation (x)

P/E

Cash P/E

P/BV

EV/EBITDA

Dividend Yield (%)

Return Ratios (%)

EBITDA Margin (%)

Net Profit Margin (%)

RoE

RoCE (post-tax)

RoIC (post-tax)

Working Capital Ratios

Fixed Asset Turnover (x)

Asset Turnover (x)

Debtor (Days)

Inventory (Days)

Leverage Ratio (x)

Current Ratio

Net Debt/EBITDA

Debt/Equity

Consolidated Cash Flow Statement

Y/E March

EBITDA

FX gain/loss

Others

Direct taxes (net)

CF from Op. Activity

Capex

FCF

Int & div income

Investments(subs/JVs)

CF from Inv. Activity

Share capital

Borrowings

Finance cost

Dividend

Others

CF from Fin. Activity

(Inc)/Dec in Cash

Opening balance

Closing balance

FY21

16.8

29.6

129.7

5.7

33.7

4.5

25.3

14.3

3.3

19.0

1.3

30.3

14.6

13.3

6.4

7.6

0.5

0.3

104

FY22

17.5

31.7

139.6

7.0

40.0

4.2

24.2

13.4

3.0

16.3

1.7

29.9

12.8

13.0

6.1

7.6

0.6

0.3

FY23

17.7

32.9

151.6

7.3

41.1

2.3

24.0

12.9

2.8

13.0

1.7

27.5

9.7

12.1

7.5

8.7

0.7

0.5

FY24

22.0

38.7

165.7

7.8

35.2

2.1

19.3

11.0

2.6

12.9

1.8

27.9

12.0

13.9

7.4

8.6

0.7

0.4

FY25E

23.4

42.2

178.7

10.1

43.2

2.4

18.1

10.0

2.4

11.4

2.4

29.4

11.9

13.6

7.7

8.6

0.7

0.5

FY26E

26.4

47.0

193.8

10.9

41.1

2.6

16.0

9.0

2.2

10.5

2.6

30.0

12.5

14.2

8.1

9.0

0.7

0.5

FY27E

28.7

51.1

211.0

11.1

38.7

2.6

14.8

8.3

2.0

9.8

2.6

31.0

12.9

14.2

8.2

9.1

0.6

0.4

6.7

1.8

5.8

1.7

4.5

1.4

4.6

1.4

4.0

1.3

3.8

1.2

3.6

1.2

(INR m)

FY27E

6,68,969

-3,032

-97,480

5,68,457

-4,67,291

1,01,165

26,650

2,32,482

-1,24,022

-1,07,691

770

1,28,585

43,665

1,72,249

FY21

3,38,218

15,364

-33,496

13,295

3,33,381

-3,69,374

-35,993

40,157

-5,000

35,157

-1,979

1,21,651

-96,552

-55,310

40,580

8,390

11,735

32,143

43,878

FY22

3,96,573

28,090

-43,661

12,892

3,93,894

-2,91,970

1,01,923

23,250

5,000

28,250

26,677

-93,747

-69,331

11,274

-1,25,127

703

43,878

44,581

FY23

4,84,789

1,78,362

-81,176

19,400

6,01,374

-2,18,332

3,83,042

17,692

-500

17,192

-1,09,745

-1,05,835

-70,301

-67,055

-3,52,936

36,253

44,581

49,485

FY24

4,97,472

-84,854

-55,712

25,131

3,82,037

-3,40,276

41,761

26,650

1,39,479

-1,19,407

-75,149

6,438

-48,639

22,895

49,485

68,473

FY25E

5,61,743

76,892

-82,169

5,56,466

-3,51,556

2,04,910

26,650

-50,405

-1,14,741

-98,085

-2,63,232

-31,672

68,473

36,801

FY26E

6,14,992

-10,096

-90,411

5,14,485

-3,71,834

1,42,651

26,650

57,688

-1,14,723

-1,05,403

-1,62,437

6,864

36,801

43,665

September 2024

Initiating Coverage | Sector: Power Utilities

Power Utilities: Thematic

Power Grid

BSE Sensex

84,929

S&P CNX

25,939

CMP: INR341

TP: INR425 (+24%)

Buy

Capex uptrend drives long-term earnings visibility



Stock info

Bloomberg

Equity Shares (m)

PWGR IN

9301

M.Cap.(INRb)/(USDb)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

12M Avg Val (INR M)

Free float (%)

3170.1 / 37.9

363 / 194

-4/11/37

5180

48.7



Financial Snapshot (INR b)

Y/E March

Sales

EBITDA

Adj. PAT

EPS (INR)

EPS Gr.%

BV/Sh. (INR)

Ratios

Net D:E

RoE (%)

RoCE (%)

Payout (%)

Valuation

P/E (x)

P/B (x)

EV/EBITDA (x)

Div. yield (%)

FY24

452.7

393.3

155.7

16.7

1.0

93.6

1.6

18.3

9.7

68.0

20.4

3.6

11.3

3.3

FY25E

495.8

426.3

170.7

18.4

9.6

98.2

1.4

19.1

10.4

71.6

18.6

3.5

10.2

3.4

FY26E

518.4

438.0

178.7

19.2

4.7

103.0

1.3

19.1

10.7

71.2

17.8

3.3

9.6

3.5



We initiate coverage on PWGR with a BUY rating and a TP of INR425. We assess a

total transmission opportunity of INR2t in the Indian power sector, and with a 50-

60% market share, PWGR remains the leading player to tap into this opportunity.

Capex and capitalization trends are just picking up for PWGR, with consolidated

capex guided to rise 20% in FY25 and consolidated capitalization likely to double

in FY25.

PWGR's earnings outlook is strong thanks to its robust work pipeline, with an

order book-to-revenue ratio of 2.5x as of 1QFY25 end. Upcoming HVDC projects,

where PWGR has a higher win ratio vs. private peers, will generate higher ROE vs.

TBCB projects, where competition is intense. A maiden data center and cross-

border projects provide future growth optionality.

We believe the Street’s ROE-related concerns due to a rising share of TBCB

projects are overdone, as 1) PWGR's equity in TBCB operations was only 5% of

consolidated equity as of FY24, 2) its upcoming HVDC projects are on RTM basis

and so will earn higher IRR; the pipeline will keep evolving due to the growing RE

footprint, and 3) significant work in hand means PWGR can be more selective in

bidding going forward.

Despite virtually no commodity risk/minimal execution risk, PWGR boasts a

higher dividend yield (FY26: 3.5%) vs. other transmission/city gas utilities (GAIL,

GSPL, IGL, MGL, Gujarat Gas), which protects downside despite the stock trading

at a multi-year high 1-year fwd PE of 18x.

Strong visibility of EPS and OCF growth; dominant market share



Shareholding pattern (%)

As On

Jun-24 Mar-24 Jun-23

Promoter

51.3

DII

16.3

15.3

12.6

FII

28.7

29.8

33.1

Others

3.6

2.9

FII Includes depository receipts

Stock Performance (1-year)



India’s ambition to grow its RE capacity to 500GW by 2030, upcoming

battery storage and pumped hydro projects, and aspirations to be a part of

One World remain the key growth drivers for PWGR in the coming years.

As of 26

July 2024, PWGR had total “work in hand” of INR1,141b, providing

medium-term visibility of earnings and cash flows. About 41% of the “work-

in-hand” pertains to RTM projects, which earn superior ~15% ROE.

Further, in FY24, PWGR had been the successful bidder for 13 ISTS TBCB

(tariff-based competitive bidding) projects that transformed into an overall

65% market share in terms of NCT costs. As such, despite rising

competition, PWGR is the best way to play the multi-year tender award

theme.

Upcoming HVDC projects, in our view, remain attractive investment

opportunities for PWGR, given higher ROE (vs. TBCB projects). Further,

PWGR, given its experience, remains best placed to win and execute HVDC

projects, as private players, such as Adani Energy Solutions and Sterlite

Power Transmission, have a limited track record in HVDC projects.

Given rising data consumption in India and the need for expansion in the

data center sector, PWGR has undertaken a pilot project at Manesar. The

data center will feature ~1,000 racks and is expected to be implemented by

4QFY25.

HVDC projects, maiden data center can be future growth drivers



September 2024

Power Utilities: Thematic



PWGR is also evaluating potential sites for additional data centers in Bangalore,

Hyderabad, Chennai and other metro cities and aims to play a significant role in

the data center industry, with a projected investment of INR10b by 2032.

The robust order book pipeline is instrumental in guiding FY25 capex growth of

~20% to INR150b. About one-third of the capex will be incurred on RTM

projects, which earn a higher ROE of ~15%.

Management has guided an increase in capex to INR242b in the coming years,

from INR125b in FY24. The sharp rise in capex is driven by a massive INR2.07t

bid pipeline to be awarded by 2032, of which INR1.9t pertains to the

transmission segment, in which PWGR is a dominant player. Overall, >80% of

the work-in-hand is related to RE evacuation.

The awarding activity for new segments, such as offshore wind, has just started

and is likely to pick up pace in the coming quarters. We estimate a capex of

INR153b/INR211b in FY25/FY26.

One of the key concerns of investors has been that equity investment in lower-

ROE TBCB projects (12-13%) has been rising (FY24 end: 5%) vs. investment in

RTM projects, which generate ~15% ROE.

However, the HVDC bid pipeline, which entails higher IRR, has continued to firm

up and PWGR has secured two HVDC projects recently. In FY23-24, PWGR

received investment approvals totaling ~INR3.6b for transmission projects under

RTM and secured projects worth INR335b through the TBCB mechanism.

Also, despite a substantial re-rating and no commodity risk/low execution risk,

PWGR boasts a higher dividend yield (FY26: 3.6%) vs. other transmission utilities

such as GAIL, GSPL or city gas distribution utilities such as IGL, MGL, and Gujarat

Gas. The high dividend yield protects downside despite a multi-year high 1-year

fwd PE.

PWGR is projected to achieve a PAT CAGR of 6% during FY24-27 as the capex

cycle picks up and capitalization increases. The commissioning of various TBCB

projects secured in the last two years should contribute to earnings growth. We

estimate ROE of ~19% in the FY24-27 period despite intense competition in the

TBCB space. Beyond FY27, HVDC projects will likely be a key driver of earnings

growth.

We derive the target price of INR425 for PWGR based on Dec’26E EBITDA and an

EV/EBITDA multiple of 11x, which we think is reasonable but at the higher end

of the historical range.

We estimate an ROE of 19% in FY25/FY26 even as the company is likely to earn

only 12-13% on TBCB projects. We expect its capex to rise to INR210b by FY26

(FY24: INR114b).

Key downside risks to our estimates and investment view stem from: 1) return

ratios, which may face the risk of peaking out as the share of more profitable

regulated tariff mechanism (RTM)-based projects will continue to decline over

the years, 2) rising competitive intensity in tariff-based competitive bidding

(TBCB), and 3) supply-chain issues leading to project delays, especially in the

renewables sector.

Capex cycle is just picking up now



ROE concerns might be overdone; strong dividend yield



Building in 6% PAT CAGR over FY24-27 as capex cycle picks up



Valuation and risks



September 2024

Power Utilities: Thematic

STORY IN CHARTS

PWGR’s last four quarter order book-to-sales ratio going up

2.5

1.7

1.3

1.1 1.2 1.0

1.3 1.2

0.9

0.7 0.6

1.1 1.1 1.1 1.1 1.1

1.9

Dividend yield comparison with other utilities

Consolidated gross block

Gross Block (INR b)

16.9 16.1

13.6

14.8

11.6

8.5

6.0

5.2

5.3

5.0

5-yr rolling CAGR (%)

Dividend payout trend

Div. payout (%)

Regulatory limit (%)

187

158

RE/Capex (%)

Standalone capex

Capex

274

278

188

102

207

195

117

106

117

153

116

135

140

Capitalization

Regulated equity trend

Reg. Equity

Standalone Adj. PAT (INRb)

503

561

607

665

711

724

736

771

812

853

104

128

138

151

154

149

157

164

September 2024

Power Utilities: Thematic

Consolidated CWIP/capital employed

CWIP/Cap Employed (%)

17.7

17.9

19.1

16.5

19.4

18.3

RoE (%)

19.1

19.0

Standalone capitalization

Standalone capitalization (INR b)

44.4

47.0

38.5

21.4

13.3

3.7

11.9

16.1

10.7

9.6

13.0 13.5

6.5

11.7

12.1

10.6

5.5

6.0

7.1

7.0

7.1

Consolidated Capitalization

Consol capitalization (INR b)

76.3

56.4

52.4

Consolidated Capital expenditure

Consol capex (INR b)

34.9

17.6 19.4

18.7

14.8 17.4

22.1

15.1

37.8

27.4

34.4 34.4

46.2

21.8

13.5

23.8

23.2

17.9 20.6 22.2 16.2

17.8

18.4

Source: Company, MOFSL

Recent new order win momentum has been strong

Date

12-Aug-24

08-Aug-24

10-May-24

16-Apr-24

05-Jan-24

01-Jan-24

State

Rajasthan

Gujarat

Rajasthan

Karnataka

Rajasthan

Capacity (GW)

n.a.

5.5

2.5

n.a.

Source: Company, MOFSL

September 2024

Power Utilities: Thematic

Company overview



Power Grid Corporation of India Limited (PWGR), a ‘Maharatna’ CPSE, is India's

largest power transmission utility, transmitting 45% of the nation's electrical

energy. With 177,790ckm of transmission lines and over 290,000 towers, it

ranks among the world's top utilities.

PWGR also operates 18 HVDC stations with 800kV and 500kV systems, each

capable of transmitting up to 6GW, sufficient for most cities, except Delhi,

where demand is around 8GW. The government holds a majority stake of

51.34% in the company, while the remaining shares are publically owned.

In support of the government’s goal of achieving 500GW of non-fossil fuel-based

capacity by 2030, PWGR has enabled the evacuation of over 48GW of non-fossil

energy capacities. PWGR is also engaged in undertaking cross-border electricity

inter-connections, with a total capacity of 4.7GW, which has helped India trade

power with Nepal, Bhutan, Bangladesh, and Myanmar.

Exhibit 59:

PWGR’s Operational transmission lines (CKM)

Operational Transmission Lines (CKM)

1,70,685

1,58,298

1,72,437

1,74,113

1,77,699

1,56,884

FY19

FY20

FY21

FY22

FY23

FY24

Source: Company, MOFSL

Exhibit 60:

Revenue growth from FY20-27E

21%

Consol Revenue (INRb)

YoY Growth

10%

-1%

Exhibit 61:

PAT growth from FY20-27E

Reported PAT (INRb)

40%

YoY Growth

12%

10%

-8%

10%

394

400

411

459

453

496

518

544

111

120

168

154

156

171

179

187

Source: Company, MOFSL

Dominant player with sizeable market share:



The total transmission network in India spans 486,517ckm. This includes

183,080ckm of central transmission lines, 261,439ckm of state transmission

lines, and 41,998ckm managed by joint ventures and the private sector.

Among the key transmission operators, which collectively manage 229,954ckm

of transmission lines, PWGR holds a commanding 77% share. The remaining 23%

is distributed among Tata Power, Sterlite Power, IndiGrid, and Adani Energy.

September 2024

Power Utilities: Thematic

This distribution underscores PWGR's significant dominance and central role in

India's transmission infrastructure.

Ambitious RE targets, rising energy storage are transmission capex drivers



We believe the following are the key growth drivers for the transmission sector

in the medium term:

Non-fossil fuel capacity:

India aims to add 500GW of non-fossil fuel-based

capacity by 2030. This ambitious target requires a significant expansion of

transmission infrastructure to accommodate new energy sources that are often

concentrated in a few states.

Energy storage:

To address peak demand and evening consumption, India is

investing in various energy storage solutions, including battery storage and

pumped storage systems, all of which are inter-connected through the

transmission network.

International connectivity:

The global "One Sun, One World, One Grid" initiative

drives the need for international interconnections. India plans to establish

connections with countries such as Sri Lanka, Myanmar, Gulf nations,

Bangladesh, and Nepal to facilitate this global vision.

Green Hydrogen Mission:

The Government of India's Green Hydrogen Mission

targets the production of green hydrogen, necessitating an additional 125GW of

renewable energy capacity.

Strong business outlook premised upon rising capex uptrend



PWGR's earnings outlook remains strong as capex is set to rise from INR114b in

FY24 to INR220b in FY27. The strong increase in capex is a function of a robust

and increasing order book, with INR1,141b of work in hand at 1QFY25 end. This

includes INR103b for ongoing RTM projects, INR370b for new RTM projects and

INR668b for other projects.

Exhibit 62:

PWGRs' Last 4 Quarter Order Book to Sales Ratio

2.49

1.68

1.34

1.06 1.20 1.03

1.28 1.23

0.87

0.67 0.59

1.06 1.08 1.10 1.07 1.10

1.89

Source: Company, MOFSL



PWGR's 2032 business outlook projects a total investment opportunity of

INR2,075b. Of this, INR1,905b is allocated to transmission projects, including

inter-state, intra-state, cross-border, and international initiatives. The remaining

INR170b will be invested in other areas such as smart metering, data centers,

and solar generation. Additionally, the company has over INR1,000b worth of

September 2024

Power Utilities: Thematic

transmission projects in its bidding pipeline, with 70-80% expected to advance

or be completed by FY25.

Exhibit 63:

Recent new order win momentum has been strong

Date

12-Aug-24

08-Aug-24

10-May-24

16-Apr-24

05-Jan-24

01-Jan-24

State

Rajasthan

Gujarat

Rajasthan

Karnataka

Rajasthan

Capacity (GW)

n.a.

5.5

2.5

n.a.

Source: Company, MOFSL



While PWGR is projecting industry capex of INR2t by 2032, according to the

National Electricity Plan (Volume II: Transmission), an estimated INR4,758b will

be needed for additional transmission infrastructure between 2022 and 2027.

This expenditure will cover new transmission lines and substations.

Exhibit 64:

Works in Hand

Works in Hand (INRb)

668

370

103

Ongoing RTM Projects

New RTM Projects

Other Projects

Source: Company, MOFSL

Exhibit 65:

Transmission Business

Cross Border

International

projects

Exhibit 66:

Other Business

Smart

Metering

Infrastructure

Data Centre

Business

Solar

Generation

88%

Intra State

20%

Estimated

outlay up to

year 2032

INR1905b

Inter State

71%

Estimated

outlay up to

year 2032

INR170b

Source: Company, MOFSL

September 2024

Power Utilities: Thematic

HVDC projects represent substantial opportunities



Upcoming HVDC projects, in our view, remain attractive investment

opportunities for PWGR given higher ROE (vs. TBCB projects). Further, PWGR,

given its experience, remains best placed to win and execute future HVDC

projects as private players, such Adani Energy Solutions or Sterlite Power

Transmission, have a limited track record for HVDC projects.

The Leh-Kaithal HVDC project, part of the Green Energy Corridor (GEC) Phase-II,

is aimed at transmitting power from Ladakh to Haryana. With an estimated cost

of INR207.7b, this project is scheduled for completion by FY30. It will connect

13GW of upcoming RE projects in Ladakh, marking a world-first for high-altitude

HVDC development at 4,500 meters. This is a challenging project given defense

sensitivities and harsh climatic conditions.

PWGR is advancing its efforts to evacuate power from RE zones in Rajasthan

through the Fatehpur-Bhadla HVDC project, which it won in 1QFY25. This

initiative includes the construction of a new 765 kV transmission system. The

project is valued at ~INR130b and is expected to be commissioned by FY29.

Maiden data center could herald new growth avenues



Given the rising data consumption in India and the need for expansion in the

data center sector, PWGR has undertaken a pilot project at Manesar. The data

center will feature ~1,000 racks and is expected to be implemented by 4QFY25.

The first phase will entail an investment of over INR7b, while the second phase

is projected to require around INR20b. PWGR is also evaluating potential sites

for additional data centers in Bangalore, Hyderabad, Chennai and other metro

cities.

The company aims to play a significant role in the data center industry, with a

projected investment of INR10b in this sector by 2032.

Smart meter represents INR1500b investment opportunity



PWGR is actively entering the smart metering sector, aligning with the

government’s ambitious Smart Meter National Program (SMNP) plan to replace

250m conventional meters with smart prepaid meters nationwide.

SMNP offers an INR1,500b capex opportunity for India's power distribution

sector. With an average cost of INR6,000 per meter, prepaid smart meters are

expected to boost discoms' collection efficiency. The central government will

also provide grants of up to INR1,350 per meter to enhance discoms' financial

stability. This initiative aims to reduce T&D losses, lower operational costs,

improve demand forecasting, and increase revenue for discoms.

Despite this, progress has been slower than anticipated, with only about 9.7m

meters installed by Feb'24, and supply chain issues affecting the pace.

PWGR plans to invest ~INR150b in smart metering infrastructure by 2032. The

company has already awarded contracts for about 6.9m meters in Gujarat,

Madhya Pradesh, and Uttar Pradesh, with around 30,000 meters installed by

May'24.

While the transition from postpaid to prepaid metering has presented some

initial challenges, particularly in software, these issues are being addressed.

PWGR expects to improve the pace of installation as these teething problems

are resolved.

September 2024

Power Utilities: Thematic



We believe the pace of smart meter installation should pick up in the coming

years, driven by advances in tendering and the government's focus on

enhancing discom finances.

Cross-border opportunities may arise as generation capacity expands



With a presence in 23 countries, PWGR is expanding its footprint globally and

has established a cross-border interconnection network with a capacity of

4.75GW, extending to Nepal, Bhutan, Bangladesh, and Myanmar.

The company is set to invest up to INR100b in cross-border projects by 2032,

demonstrating its strategic focus on enhancing its international infrastructure

footprint and allowing India to trade in power with neighboring countries.

Multi-year capex uptrend has just begun



For FY25, Power Grid has allocated a capex of INR180b. The company's total

work in hand is valued at INR1,140b, a figure expected to rise with upcoming

project bids. Significant ongoing projects include the HVDC transmission systems

for Leh and Kaithal, costing ~INR200b, and the Fatehpur and Bhadla projects,

totaling around INR120b-130b.

After accounting for these major projects, the remaining projects are worth

~INR700b-800b, slated for commissioning by FY27. PWGR aims to invest over

INR250b in FY26 and around INR300b in FY27, demonstrating a robust

commitment to advancing and completing its extensive project pipeline.

Exhibit 68:

Consolidated capitalization in FY20-27E

Consol Capitalisation (INRb)

222.2

209.2

155.7

215.4

219.6

Exhibit 67:

Consolidated capex trend on the rise

Consol Capex (INRb)

211.2

153.7

113.7

93.6

79.7

FY22

82.4

FY23

FY24

FY25E FY26E FY27E

Source: Company, MOFSL

114.0

203.3

146.5

70.0

FY20

FY21

FY22

FY23

70.2

FY24

FY25E FY26E FY27E

Source: Company, MOFSL

FY20

FY21

ROE concerns might be overdone



One of the key concerns of investors has been that equity in lower-ROE TBCB

projects has been rising. As of FY24, PWGR's equity in TBCB operations stands at

INR38b, with an additional INR5.9b in TBCB projects under construction. As

such, equity invested in TBCB projects accounts for only 5% of consolidated

equity and is unlikely to be a drag on overall ROE. ROE on TBCB projects is

estimated at 12-13%, compared to ~15% for RTM projects.

Further, we also highlight that HVDC projects and some of the recent RTM

projects won by the company such as Green Energy Corridor for Ladakh - Pang

to Kaithal HVDC; Fatehpur-Badla HVDC project Phase III (Part I) will earn higher

IRR, thus supporting overall ROE, in our view.

September 2024

Power Utilities: Thematic



In FY 2023-24, PWGR received investment approvals totaling ~INR3.6b for

transmission projects under RTM and secured projects valued ~INR335b

through the TBCB mechanism.

The company operates with a shareholder-approved debt ceiling of INR1.8t, yet

current debt is at INR1.2t. PWGR operates at a debt level significantly below the

approved debt ceiling, largely due to lower capex in recent years, which

averaged between INR80b and INR92b annually, although it increased to

INR122b in FY24 and will rise further to INR 180b in FY25. Also, the scheduled

debt repayments between INR120b and INR130b have contributed to the

reduced debt level. As capex is expected to rise, the debt-equity ratio may

increase in coming years, leading to a more efficient balance sheet, thus

boosting ROE further.

Consol ROE (%)

19.4

18.3

Exhibit 69:

Consolidated ROE (%)

19.1

17.9

16.5

19.1

19.0

FY20

FY21

FY22

FY23

FY24

FY25E

FY26E

FY27E

Source: Company, MOFSL

Highest dividend yield among utilities; protects downside



Despite virtually no exposure to commodity risk and minimal execution risk,

PWGR boasts a higher dividend yield compared to companies such as GAIL,

GSPL, IGL, MGL, and Gujarat Gas, which are subject to commodity price

volatility.

Given PWGR's consistent history of dividend payments, it is anticipated that the

company will continue to distribute dividends in the near future, even with its

ongoing capex and growth initiatives. This elevated dividend yield reflects

PWGR's stable earnings and robust cash flows and suggests that PWGR may be

undervalued relative to its peers.

Exhibit 70:

Dividend yield (%)

FY25E

FY26E

3.4

3.5

2.5

2.7

2.9

3.2

2.7

1.0

1.1

1.3

1.7

2.8

1.3

1.1

PWGR

NTPC

GAIL

GUJS

IGL

MAHGL

GUJGA

Source: Bloomberg, MOFSL

PWGR’s attractiveness as an investment could get a boost should interest rates start

declining in India and globally.

September 2024

Power Utilities: Thematic

Exhibit 71:

India G-sec and PWGR PE multiple comparison

PWGR 1Y Fwd P/E (x)

21.0

17.3

13.5

10.6

9.8

6.0

7.0

LTA - PWGR 1Y Fwd P/E (x)

Govt. Sec. 10Y yeild (%)

19.3

9.0

8.0

7.0

6.0

5.0

Source: Bloomberg, MOFSL

Risks



Moderation in incremental order book:

Transmission capacity has seen

substantial growth, with inter-regional capacity increasing by 224% to 116GW

since 2014. While the long-term outlook remains positive, a slowdown in the

pace of auctions will create uncertainties for earnings growth for transmission

players. The shift toward a TBCB approach, as opposed to the previous

nomination-based system, has increased competition and may lead to IRR

concerns.

Risks from capex delays and equipment shortages:

If the transmission capex

cycle is slower than expected, PWGR's favorable outlook could be at risk,

leading to slower earnings growth in the coming years. The risk of a slower

capex cycle may stem from ongoing global shortage of transmission equipment.

Right of way remains a key challenge:

Challenges such as right-of-way and land

acquisition may contribute to project delays and cost/time overruns.

Furthermore, the sector is increasingly vulnerable to cybersecurity threats. As

the grid becomes more digitalized, it faces greater risks from cyberattacks,

which could disrupt power supply and compromise grid security.

Valuation



We derive the target price of INR425 for PWGR based on Dec’26E EBITDA and an

EV/EBITDA multiple of 11x which we think is reasonable though at the higher

end of the historical range.

Despite virtually no commodity risk/minimal execution risk, PWGR boasts a

higher dividend yield (FY26: 3.5%) vs. other transmission/city gas utilities (GAIL,

GSPL, IGL, MGL, Gujarat Gas), which protects downside despite the stock trading

at a multi-year high 1-year fwd PE of 18x.

September 2024

Power Utilities: Thematic

Exhibit 72:

PWGR’s dividend yield has historically been lower than NTPC but this has reversed recently

10.0

PWGR

7.5

5.0

2.5

3.4

NTPC

12m Div. Yield (%)

Source: Bloomberg, MOFSL

Exhibit 73:

Power Grid valuation

Dec-26 EBITDA

EV/EBITDA multiple

Net debt

Target Price

CMP

Upside / (Downside)

INR b

(x)

INR bn

INR

448

4,940

986

425

342

24%

Source: Bloomberg, MOFSL

September 2024

Power Utilities: Thematic

SWOT analysis



India’s largest power



transmission company

Attractive return profile

with 90% of equity still

invested in regulated

projects with attractive

returns

Advantageous financing

costs and economies of

scale



Low entry barriers in



the transmission

business

Tough to substantially

raise ROE given large

balance sheet size;

already high dividend

payout ratio



Upcoming opportunities

in TBCB projects can

drive increase in capex

as India plans to raise RE

installed capacity from

~192GW to 500 GW by

2030

New opportunities in

data centers or cross-

border transmission



Changes in government

priorities can disrupt

long-term planning and

investment in the power

sector

Credit-worthiness of

customers such as state

power utilities

Increasing participation

of private players in the

transmission sector poses

a competitive threat to

POWERGRID's market



September 2024

Power Utilities: Thematic

Bull and Bear cases

Bull case

In our Bull case scenario, we see improved visibility and wins in the TBCB and

intra-state bid pipelines. These will likely drive further re-rating even as earnings

impact is muted since capitalization is likely to materialize post-FY26. We raise

our target EV/EBITDA multiple to 13x.



We raise the consolidated capitalization over FY25-27 period by ~25% and also

model a ~1% EBITDA margin improvement.



Based on the above assumptions, the company’s valuation would be INR540/sh.



Bear case



In our Bear case scenario, we build in ~2% lower EBITDA margin over the FY25-

27 period.



We assume ~24% lower standalone capitalization over FY25-27 period.



We also project reduced visibility in TBCB and intra-state bid pipelines,

prompting a downward adjustment of the EV/EBITDA ratio to 8x.



Based on the above assumptions, the company’s valuation would be INR269/sh.

Exhibit 74:

Scenario analysis – Bull case

INR m

Net revenues

EBITDA

PAT

Target price (INR)

Upside (%)

FY25E

4,97,397

4,29,923

1,70,554

540

FY26E

5,23,887

4,47,931

1,80,104

FY27E

5,50,867

4,65,910

1,90,189

Exhibit 75:

Scenario analysis – Bear case

INR m

Net revenues

EBITDA

PAT

Target price (INR)

Downside (%)

FY25E

5,05,369

4,24,182

1,68,868

269

FY26E

5,21,709

4,31,335

1,75,281

FY27E

5,40,304

4,40,072

1,82,440

Source: MOFSL

September 2024

Power Utilities: Thematic

ESG initiatives

Environment



Power Grid is striving towards the goal of becoming "Landfill-free" by FY30 and

is progressing steadily towards becoming a “Net Zero” organization by FY47.

The company’s aim is to derive 50% of its internal energy consumption from

renewable fuel sources by FY25.

Five Organic Waste Converter machines have been provided to the areas in

Gujarat and Odisha.

It aims to achieve a state of being net water positive by FY30.

Social



A total of 2,093 toilets have been built across public areas in Uttar Pradesh,

Telangana, and Bihar.

Provided desks and benches to 82 government schools spread across Tamil

Nadu, Rajasthan, Bihar, Uttar Pradesh, and Chhattisgarh.

Financial assistance was provided to 1,260 students under the National

Foundation for Communal Harmony.

Health checkup camps at over 40 locations across the country have benefited

more than 3,000 villagers.

Governance



The composition of Risk management committee (applicable to the top 1,000

listed entities) is as per the SEBI (Listing obligations and disclosure

requirements) Regulations, 2015.

September 2024

Power Utilities: Thematic

Management overview

Shri Ravindra Kumar Tyagi, Chairman & Managing Director



Mr. Tyagi has over 33 years of extensive industry experience in the Power sector

at various key positions in leading CPSUs. Prior to this, he held the position of

Director (Operations) at Power Grid.

He is an Electrical Engineer from Punjab Engineering College (PEC), Chandigarh

and completed his M. Tech in Energy Studies from IIT Delhi. Further, he is a

“Fulbright Scholar” from Carnegie Mellon University, US.

Shri Abhay Choudhary, Director (Projects)



Mr. Choudhary’s career spans around 37 years in the Power sector. Prior to his

current role, he was the Executive Director (Commercial & Regulatory Cell)

along with the charge of CMD Coordination Cell in the company. He was

associated with NTPC too for six years before joining Power Grid.

He is an Electrical Engineering graduate from NIT Durgapur. He also holds a Post

Graduate Diploma in Management from IMT Ghaziabad.

Shri G Ravisankar, Director (Finance)



Mr. Ravisankar has an experience of 32 years, serving predominantly in Power

Grid. He has vast experience in key finance functions viz. resource mobilization,

budgeting, and financial reporting. He was appointed to the Board in Sep’22.

He is a Mathematics Graduate from the University of Madras and is a Cost

Accountant too. He has also done Post Graduate Diploma in Personnel

Management as well as in Materials Management from the Annamalai

University.

Dr. Yatindra Dwivedi, Director (Personnel)



Dr. Dwivedi is Director (Personnel) of Power Grid. Prior to this role, he was the

Executive Director (HR). He has an experience of over 33 years and started his

professional journey with Hindalco Industries and joined Power Grid in CY93.

He holds a Bachelor’s Degree in Engineering from IIT Roorkee, PGDIE from NITIE

Mumbai (now IIM Mumbai), PGDM from MDI Gurgaon and a Doctorate in

Management.

September 2024

Power Utilities: Thematic

Financials and valuations

Consolidated Income Statement

Y/E March

Net Sales

Change (%)

EBITDA

% of Net Sales

Depreciation

Interest

Other Income

PBT before EO

EO income (expense)

PBT after EO

Tax

Rate (%)

Share of JVs and asso.

Reported PAT

Adjusted PAT

Change (%)

FY22

4,10,866

2.7

3,60,372

87.7

1,28,717

80,362

10,816

1,62,108

33,203

1,95,312

27,856

14.3

785

1,68,241

1,39,773

8.6

FY23

4,58,517

11.6

3,97,485

86.7

1,33,334

96,339

10,025

1,77,837

22,819

12.8

-821

1,54,197

10.3

FY24

4,52,717

-1.3

3,93,315

86.9

1,30,953

87,728

10,700

1,85,335

29,408

15.9

-196

1,55,732

1.0

FY25E

4,95,823

9.5

4,26,310

86.0

1,39,784

96,107

11,768

2,02,188

32,695

16.2

1,200

1,70,693

9.6

FY26E

5,18,395

4.6

4,38,043

84.5

1,46,125

93,380

12,890

2,11,428

34,266

16.2

1,500

1,78,661

4.7

(INR m)

FY27E

5,43,724

4.9

4,51,694

83.1

1,53,072

90,866

14,068

2,21,824

35,952

16.2

1,500

1,87,372

4.9

Balance Sheet

Y/E March

Share Capital

Reserves

Net Worth

Loans

Deferred Rev. & tax

Capital Employed

Gross Fixed Assets

Less: Depreciation

Net Fixed Assets

Capital WIP

Investments

Other Assets

Inventory

Debtors

Cash & Bank Balance

Other Current Assets

Loans & Advances

Other Liabilities

Net Current Assets

Application of Funds

FY22

69,755

6,92,717

7,62,471

13,46,653

2,08,715

23,17,839

26,31,148

7,13,419

19,17,728

1,28,536

37,876

4,25,294

13,572

91,893

50,482

1,58,072

1,11,275

1,91,595

2,33,698

23,17,839

FY23

69,755

7,60,391

8,30,145

12,65,949

2,08,424

23,04,518

27,01,123

8,46,753

18,54,370

1,37,723

34,891

4,75,971

13,400

1,36,945

73,846

1,33,195

1,18,585

1,98,438

2,77,534

23,04,518

FY24

93,006

7,77,480

8,70,486

13,54,522

1,94,910

24,19,918

27,71,367

9,72,767

17,98,600

1,72,453

54,159

5,24,023

13,201

1,17,262

76,769

2,08,615

1,08,176

1,29,316

3,94,708

24,19,919

FY25E

93,006

8,19,997

9,13,003

12,82,143

1,94,910

23,90,056

29,27,092

11,06,643

18,20,449

1,70,454

54,159

5,74,067

12,537

1,17,262

1,18,084

2,16,524

1,09,659

2,29,073

3,44,994

23,90,056

FY26E

93,006

8,65,054

9,58,060

12,30,838

1,94,910

23,83,808

31,42,530

12,46,269

18,96,260

1,66,244

54,159

6,50,638

13,201

1,22,655

1,77,616

2,24,631

1,12,534

3,83,492

2,67,146

23,83,808

(INR m)

FY27E

93,006

9,17,820

10,10,826

11,81,526

1,94,910

23,87,262

33,62,128

13,92,193

19,69,935

1,68,816

54,159

6,96,700

13,639

1,26,552

2,10,196

2,32,940

1,13,373

5,02,347

1,94,353

23,87,263

September 2024

Power Utilities: Thematic

Financials and valuations

Ratios

Y/E March

Basic (INR)

EPS

Cash EPS

Book Value

DPS

Div.Payout (incl. Tax.)

Valuation (x)

P/E

Cash P/E

EV/EBITDA

Price/Book Value

Dividend Yield (%)

Profitability Ratios (%)

RoE

RoCE

RoIC

Turnover Ratios

Debtors (Days)

Inventory (Days)

Current Liabilities (Days)

Asset Turnover (x)

Leverage Ratio

Net Debt/EBITDA

Debt/Equity (x)

FY22

15.0

28.9

82.0

11.1

60.2

22.7

11.8

12.4

4.2

3.2

16.5

8.9

9.6

143

0.2

3.6

1.8

FY23

16.6

30.9

89.3

11.1

68.0

20.6

11.0

3.8

3.2

19.4

10.3

11.1

109

134

0.2

3.0

1.5

FY24

16.7

30.8

93.6

11.3

68.0

20.4

11.1

11.3

3.6

3.3

18.3

9.7

10.6

0.3

3.2

1.6

FY25E

18.4

33.4

98.2

11.5

71.6

18.6

10.2

3.5

3.4

19.1

10.4

11.5

129

0.3

2.7

1.4

FY26E

19.2

34.9

103.0

12.0

71.2

17.8

9.8

9.6

3.3

3.5

19.1

10.7

12.1

192

0.3

2.4

1.3

FY27E

20.1

36.6

108.7

12.0

67.9

16.9

9.3

9.2

3.1

3.5

19.0

11.0

12.7

239

0.3

2.1

1.2

Cash Flow Statement

Y/E March

PBT before EO Items

Depreciation

Interest

Others

(Inc)/Dec in WC

Direct Taxes Paid

CF from Operations

(Inc)/Dec in FA

(Pur)/Sale of Investments

CF from Investments

(Inc)/Dec in Debt

Interest Paid

Dividend Paid

CF from Fin. Activity

Inc/Dec of Cash

Add: Beginning Balance

Closing Balance

FY22

1,94,975

1,28,717

80,362

-42,116

-63,509

-37,194

2,61,235

-79,662

87,190

7,528

-93,343

-88,207

-1,08,120

-2,89,669

-20,906

71,388

50,482

FY23

1,74,531

1,33,334

96,339

869

25,486

-28,530

4,02,029

-82,426

11,044

-71,383

-1,32,578

-86,468

-85,449

-3,04,496

26,151

25,771

51,922

FY24

1,90,853

1,30,953

87,728

-13,363

10,532

-33,807

3,72,895

-1,14,037

-17,107

-1,31,144

-53,168

-93,677

-1,12,189

-2,59,033

-17,282

51,922

34,640

FY25E

2,02,188

1,39,784

96,107

-11,768

91,029

-32,695

4,84,645

-1,53,727

12,968

-1,40,758

-72,379

-96,107

-1,06,957

-2,75,443

68,443

34,640

1,18,084

FY26E

2,11,428

1,46,125

93,380

-12,890

1,37,381

-34,266

5,41,157

-2,11,227

14,390

-1,96,837

-51,305

-93,380

-1,11,607

-2,56,292

88,028

1,18,084

1,77,616

(INR m)

FY27E

2,21,824

1,53,072

90,866

-14,068

1,05,372

-35,952

5,21,114

-2,22,170

13,917

-2,08,253

-49,312

-90,866

-1,11,607

-2,51,785

61,075

1,77,616

2,10,196

September 2024

Initiating Coverage | Sector: Power Utilities

Power Utilities: Thematic

Tata Power

BSE Sensex

84,929

S&P CNX

25,939

CMP: INR443

TP: INR530 (+19%)

Buy

Diversified operations key enabler of growth



Stock info

Bloomberg

Equity Shares (m)

M.Cap.(INRb)/(USDb)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

12M Avg Val (INR M)

Free float (%)

TPWR IN

3195

1419.2 / 17

471 / 231

1/-1/40

6481

53.1

FY24

614.5

107.8

40.9

12.8

7.5

101.2

1.0

13.4

8.4

15.6

34.6

4.4

17.3

0.5

FY25E

803.2

139.1

50.1

15.7

22.4

111.9

1.2

14.7

9.5

15.9

28.3

4.0

14.4

0.6

FY26E

893.4

158.4

59.5

18.6

18.8

124.6

1.2

15.8

9.2

17.4

23.8

3.6

13.1

0.7



Financial Snapshot (INR b)

Y/E March

Sales

EBITDA

Adj. PAT

EPS (INR)

EPS Gr.%

BV/Sh. (INR)

Ratios

Net D:E

RoE (%)

RoCE (%)

Payout (%)

Valuation

P/E (x)

P/B (x)

EV/EBITDA (x)

Div. yield (%)



We initiate coverage on TPWR with a BUY rating and our SoTP-based TP of

INR530. TPWR is an integrated power utility company with presence across

thermal and renewable power generation, transmission and distribution, and

solar module manufacturing.

TPWR management aims to double EBITDA and PAT by FY27 (vs. FY23) as TPWR

allocates 45% of the INR600b capex over FY24-27 to RE-related businesses. The

outlook beyond FY27 also remains optimistic given the INR40t investment

opportunity in the Indian power sector in the FY24-32 period, in our view.

TPWR’s share of core earnings (excluding coal, Tata Projects, etc.) is set to rise

from 40% in FY23 to 90% in FY27 (as per guidance) as the solar module plant

ramps up operations and 15GW of RE capacity is commissioned. TPWR has also

achieved a solid balance sheet turnaround in the last five years, with its net debt-

to-EBITDA ratio declining to 3.6x from 7.6x over FY19-24.

TPWR’s diversified scale of operations has been a key advantage over peers,

giving it exposure to solar rooftop, distribution reforms, transmission

opportunity, RE generation, module manufacturing and pumped storage. In the

1QFY25 earnings call, TPWR highlighted that it is open to a nuclear investment

opportunity and the management awaits further policy clarity.

TPWR is trading at FY26 EV/EBITDA of 13x vs. the historical average of 10x, which

we believe is only a modest premium given a sharp turnaround in leverage

situation, guidance of 90% earnings from core business by FY27 (FY23: 40%) and

growing income streams from module manufacturing, utility-scale RE projects and

a burgeoning solar rooftop business.

Our SOTP-based TP of INR530 values the RE business at 14x FY27E EV/EBITDA and

the coal and regulated businesses at 1.5x/2.5x FY27E PB, respectively. A robust

14% CAGR in PAT over FY24-27 should help sustain its valuations, in our opinion.

Shareholding pattern (%)

As On

Jun-24 Mar-24

Promoter

46.9

DII

15.8

FII

9.5

Others

27.8

27.9

FII Includes depository receipts

Stock performance (one-year)

Jun-23

46.9

14.9

9.8

28.5

Aims to double profits by 2027; execution is key



TPWR management aims to double the company’s EBITDA and PAT by FY27,

which implies a ~19% CAGR in EBITDA/PAT over FY23-27 period. EBITDA of

the conventional segment is expected to see a reasonable 8% CAGR (as

implied by targets), while T&D and renewables are expected to clock

16%/30% CAGRs over FY23-27, as per the management. Similarly, we

estimate renewables/T&D to contribute ~59%/30% to PAT growth and the

rest 11% by the conventional segment.

We believe this is an ambitious task; however, given TPWR’s scale, we note

that 1) in T&D, the company has recently secured three key projects worth

INR46b, which should aid profitability; 2) in renewables, the 4 GW cell and

module manufacturing facility has already started operations with ~64%

utilization in 1QFY25; 3) RE utility scale pipeline has continued to grow, with

the company looking to commission 3GW/4GW in capacity in FY25/FY26.

September 2024

Power Utilities: Thematic

Undergoing a multi-year structural shift in business



TPWR is undergoing a multi-year structural shift that will, over time, lower

earnings volatility, improve balance sheet strength and lower commodity

exposure. Some of these factors, such as lower leverage (FY26E ND/E: 1.2x) and

lower earnings visibility, are already evident in recent results.

The structural shift is mainly driven by the company’s decision to deploy 45% of

~ INR600b capex in the FY24-27 period for RE-related projects, which are backed

by long-term PPAs. The company projects that renewables could form ~45-50%

of EBITDA by FY27, which raises visibility on earnings, cash flow and growth.

Further, with limited thermal capex ahead, RE contribution to EBITDA will

continue to grow even beyond 2030, improving cash flow stability and earnings

predictability.

The stability in operations is already reflecting in the balance sheet, with the

company achieving a rating upgrade from Standard & Poor’s recently

(link).

Integrated business model, strong execution track record



We like TPWR's integrated business model spanning generation, transmission

and distribution with exposure to both conventional and renewable assets.

TPWR’s strong distribution footprint, for example, is a key strategic advantage

that helps the company maintain a dominant market share in the solar rooftop

scheme.

Further, we note that many of the investment opportunities in the power utility

space have emerged only recently (e.g. EV charging, module manufacturing) and

the management has been able to capitalize on these opportunities. For

example, in solar rooftop, TPWR has a solid 13% market share, while the utility-

scale RE pipeline is a sizeable 8 GW currently.

In the 1QFY25 earnings call, the management expressed its willingness to

explore the nuclear opportunity after policy clarity emerges.

Diversified operations key to tapping several outsized opportunities



TPWR is a unique play with exposure to several outsized business opportunities,

such as 1) potential USD30b opportunity in the transmission sector, 2) fast-

emerging electric vehicle charging opportunity, and 3) ~40GW pumped hydro

project potential over the long term, 4) ~30-40GW potential solar rooftop

opportunity. Lastly, in distribution, it is by far the most established player, with

12.5m customers spread across Delhi, Mumbai and Odisha.

As such, the opportunity size for the company can continue to grow over the

next decade given India’s need to expand/upgrade its generation and

transmission infrastructure.

Well placed to leverage synergies with Tata Group



TPWR’s close association with Tata Group has been a strategic advantage over

peers and it enhances synergies across its diverse business segments. For

example, TPWR is a key supplier of thermal power to Tata Steel and has signed

an agreement to provide Tata Steel with 966 MW of hybrid power, expected to

be commissioned in FY25/FY26.

September 2024

Power Utilities: Thematic



TPWR is well-positioned to meet the growing energy demands of data centers

and semiconductor manufacturing within the group, utilizing its expertise in

energy infrastructure to support these sectors.

The company’s RE projects also provide a consistent off-take for its power

supply projects (PSP), ensuring reliable energy supply.

Building in 14% PAT CAGR over FY24-27 as new ventures scale up



TPWR is projected to achieve a PAT CAGR of 14% over FY24-27, driven by

several key factors. The ramp-up of its 4GW cell and module manufacturing

facility, along with the commissioning of 15GW RE capacity by FY27, will

significantly drive growth. Additionally, the company has secured three major

projects in the T&D segment worth INR46b, which are expected to further

contribute to profitability.

Valuation and risks



TPWR is trading at 13x FY26E EV/EBITDA vs. the historical average of 10x, which

we believe is only a modest premium given a sharp turnaround in leverage

situation and strong earnings growth.

The valuation of TPWR is segmented across various business units, leading to a

target price of INR530/share. The regulated business is valued using a 2.5x

multiple on regulated equity. The coal segment is valued based on equity with a

1.5x multiple of FY24 book value. The renewables segment is valued at a 14x

multiple of FY27E EBITDA. The pumped storage segment is valued at 1x PB and

other segments are also valued at 1.5x PB. Cash and investments add

INR46/share. The sum of these contributions results in a target price of

INR530/share, reflecting the comprehensive valuation of TPWR's diverse

business segments.

Key risks: 1) While we are optimistic about the company’s solar module

manufacturing business, declining panel prices and significant overcapacity in

China pose a risk; 2) the management's FY27 guidance assumes some inorganic

growth (i.e., distribution license wins, securing bids in TBCB projects, etc.),

which may or may not materialize; and 3) delays in securing government

approvals for projects such as pumped hydro storage to impact project

execution.

September 2024

Power Utilities: Thematic

STORY IN CHARTS

Current operational capacity (%)

WHRS/ Hybrid

GFG

Capacity share after completion of pipeline projects (%)

Hybrid

24%

WHRS/

GFG

Thermal

59%

Solar

21%

Wind

Hydro

Thermal

44%

Solar

23%

Wind

Hydro

Targeting 15GW+ Clean & Green capacity

20.0

15.0

Consolidated/standalone EBITDA

Consol EBITDA (INRb)

Stand EBITDA (INRb)

5.5

current

2027

2030

Coal prices (USD/t) have come off

Coal Price

600

450

Solar utility EPC order book

EPC Orderbook (INR/b)

174.7 176.4

146.3

152.6 154.4

158.7 158.9

300

150

133.9

130.2

Consolidated RoE and RoCE post tax (%)

ROE (%)

ROCE (post-tax) (%)

Consolidated Net Debt/EBITDA

Net Debt/EBITDA

5.9

5.5

5.4

4.8

4.1

3.6

3.7

Source: Company, MOFSL

September 2024

Power Utilities: Thematic

Company overview



TPWR is India's largest vertically integrated power company, with a rich legacy

spanning over a century. Headquartered in Mumbai, India, the company has

established itself as a pioneering force in the energy landscape, boasting a

robust footprint across generation, renewables, transmission, distribution, and

cutting-edge energy solutions.

The company, with a total installed capacity of 14,707 MW in FY24 across both

domestic and international assets, reflects a significant 20% increase from FY20

and maintains a diversified energy portfolio. This includes 8,860 MW of thermal

power, 3,490 MW of solar power, 1,034 MW of wind energy, 880 MW of

hydropower, and 443 MW from waste heat recovery/BFG. The company’s

balanced mix of traditional and renewable energy sources reflects its strategic

focus on sustainability and efficiency.

In FY24, the company generated 64,600 MUs of power, marking a 19.5% YoY

increase, and served 12.5m customers.

TPWR has achieved a 40% clean and green energy portfolio in 2024, aligning

with India's increasing focus on RE. The company is poised for continued

growth, with plans to boost renewable capacity to 15GW by 2027 and achieve

100% renewable power generation by 2045.

Exhibit 76:

TPWR’s business portfolio

Generation

Model

type

Thermal

Regulated Tarif

Returns



Project

Mumbai operations-Trombay, Maithon, Jojobera

(Unit 2 and 3), TPDDL-Rithala

jojobera (Unit 1and 4), Mundra, Kalinganagar-IEL-40

IEL (Unit 5), CKP (Indonesia)

Prayagraj

Capacity

(MW)

2,328

4,378

174

1,980

8,860

4,121

447

307

526

446

5,847

14,707

% Overall

capacity

15.83

29.77

1.18

13.46

60.24

28.02

3.04

2.09

3.58

3.03

39.76

100.00

Regulated Return on



Equity (ROE)

Bilateral Agreement +



Bid Driven

Bilateral Captive



Agreement

PPA Based



PPA / Fixed Tariff (Bid



/ Others)



Captive

Under Platform

Management



Clean and



PPA / Fixed Tariff RE

Green



Regulated Tarif

PPA / Fixed Tariff

(Bid / Others)

Captive

Merchant

Total



Feed In Tariff + Bid

Driven

Regulated Return on



Mumbai operations-Hydro

Equity (ROE)

Bilateral Agreement +



Itezhi-Tezhi Hydro Projects, Georgia Hydro

Bid Driven

Bilateral Captive



IEL (Unit 6, KPO), Captive Renewable project

Agreement

Market driven



Haldia, Dagachhu, RenewablesSolar-TPTCL

Sub-Total



Wind, Solar and Hybrid Projects (Domestic), TPTCL,

TPDDL

September 2024

Power Utilities: Thematic

Exhibit 77:

TPWR’s generation capacity

Total generation capacity (GW)

14.7

14.1

13.5

12.7

12.8

FY20

*PPA Capacity

FY21

FY22

FY23

FY24

Source: Company, MOFSL

TP Solar: Set to become India’s leading integrated cell and module

manufacturer



In FY23, TPWR, via TP Solar (TPSL), signed a MoU with the Tamil Nadu

government to invest ~INR30b in establishing a greenfield 4 GW solar cell and 4

GW solar module manufacturing plant in Tirunelveli District, Tamil Nadu.

The module plant, commissioned in FY24, has stabilized and is now operating at

full capacity, contributing to a robust performance in 1QFY25. The cell plant is

on track for 2GW capacity to be commissioned by Aug’25, with full capacity

(4GW) production anticipated by 3QFY25. Once fully operational, TPSL will

emerge as one of India’s largest integrated cell and module manufacturers,

leveraging industry-leading technology.

The ramp-up at this facility has already shown promising results, with revenues

exceeding INR10b and a PAT of INR0.54b in 1QFY25. The facility produced ~130

MW of modules in 4QFY24 and increased output to 614 MW by 1QFY25,

underscoring its strategic importance to TPWR's RE ambitions.

Pump storage projects (PSPs) set to deliver 2.8GW of clean energy



TPWR, in collaboration with the government of Maharashtra, is developing two

major pumped storage hydro projects – Bhivpuri PSP and Shirwata PSP – with a

combined capacity of 2.8 GW. This initiative reflects the company's commitment

to a greener future and enhancing grid stability. Of the total 2.8 GW,

construction of 1GW is expected to start in the latter part of 2024, contingent

upon the receipt of all necessary approvals, and the remaining 1.8 GW is

anticipated to start by mid-2025.

The Bhivpuri PSP, with a capacity of 1,000 MW, is expected to generate 6,000

MWh daily, with an estimated investment of INR47b, and the DPR approval

from CEA is anticipated by Sep’24.

The Shirwata PSP, with a larger capacity of 1,800 MW, is projected to generate

10,800 MWh daily, with an expected investment of INR78.5b, and the DPR

approval is anticipated by Mar’25.

These projects represent a significant step toward the adoption of clean energy

and the gradual phasing out of thermal operations, contributing to a more

sustainable energy landscape.

September 2024

Power Utilities: Thematic

Leading the charge in rooftop and utility-scale RE projects



TPWR is making significant strides in the RE sector, particularly in rooftop solar

installations and utility-scale projects. Through the PM Surya Ghar Program, the

company has already achieved over 0.1m rooftop solar installations. With the

government’s ambitious goal of installing nearly 10m rooftop solar units over

the next 3-4 years, TPWR is well-positioned to become the market leader in

implementing rooftop solar across the country. A significant increase in revenue

from solar rooftop projects is anticipated by the 4QFY25.

Exhibit 78:

Notable utility-scale FDRE tender wins

SJVN 460MW* FDRE

Tariff (₹/unit)

e-RA date

Total capacity (MW)

Tender type

Capacity sizing (x)

Execution timeline

LoA status

*PPA Capacity



4.38

07-Nov-23

1,317 MW

FDRE

~3x

2 years from date of PPA

Received

NTPC 200MW* FDRE

4.71

22-Mar-24

585 MW

FDRE

~3x

2 years from date of PPA

Received

Source: Company, MOFSL



Currently, TPWR has more than 5 GW of utility-scale RE projects under

implementation, including enterprise orders for group captive projects with Tata

Steel and other industries. Additionally, there are nearly 3 GW of third-party EPC

projects underway. In total, the company is managing the commissioning of

nearly 8 GW of projects – 3 GW in FY25 and 4 GW in FY26.

TPWR also holds a well-diversified utility-scale solar EPC order book and leads in

rooftop solar EPC with a 13.1% market share. As of 1QFY25, the company's solar

EPC order book, which includes large-scale utility projects, group captive

projects and rooftop installations, exceeded INR156b. In 1QFY25 alone, the

utility-scale solar EPC business secured orders totaling 225 MW, valued at

INR9.3b, and successfully executed 203 MW of projects.

Exhibit 79:

Utility-scale EPC order book

Customer

Tata Group

SJVN

NTPC

NLC

NHPC

NHDC

SECI

Order Book as on 30th June 2024

Total Capacity as on 30th June 2024 (GW)

Order book (INR b)

68.13

32.66

5.43

12.27

10.95

0.6

0.14

130.18

2.6

Source: Company, MOFSL

September 2024

Power Utilities: Thematic

Exhibit 80:

Rooftop solar has grown at 17% CAGR in the

past 4 years (in MW)

Commercial

Industrial

Residential

Exhibit 81:

TPWR has 13.1% market share in Solar Rooftop

EPC

Tata Power,

13.1

Roofsol, 2.3

Mahindra,

1.6

Hartek, 1.4

Orb, 1.3

Market Size =

2,855 MW in

CY23

730

746

180

965

389

2019

358

659

334

2020

1,039

411

2021

1,659

250

2022

1085

1,381

389

2023

Others,

81.6

Source: Company, MOFSL

Transmission expansion: Plans to exceed 10,000ckm capacity in five years

TPWR operates an extensive transmission capacity covering various

geographies, including Mumbai, Uttar Pradesh, West Bengal, Bihar, Rajasthan,

and Haryana, totaling 6,668 ckm. In addition, the company's distribution

operations cater to ~12.5m customers across Mumbai, Delhi, Odisha, and

Ajmer.



The company has recently secured significant projects worth INR46b to bolster

its transmission portfolio, including:

Jalpura Khurja Power Transmission (160 ckm)

Rajasthan Phase IV Part C (682 ckm)

Paradeep Transmission (384 ckm)



As of 1QFY25 end, TPWR's transmission capacity includes 4,626ckm of

operational capacity, 7ckm of capacity added in 1QFY25, and 2,035ckm under

construction, resulting in a total transmission capacity of 6,668ckm.



TPWR aims to expand its transmission capacity to over 10,000ckm and its

customer base to more than 40m within the next five years.



Exhibit 82:

Operational transmission line capacity

Operational transmission line capacity (CKM)

4,626

4,194

3,531

3,536

3,552

FY20

FY21

FY22

FY23

FY24

Source: Company, MOFSL

September 2024

Power Utilities: Thematic

Leveraging synergies with Tata Group

TPWR strategically leverages its affiliation with the Tata Group to enhance synergies

across its diverse business segments, thereby optimizing operational efficiency and

strengthening its market position. These synergies encompass:



Thermal power supply: TPWR is a key supplier of thermal power to Tata Steel,

underscoring its critical role within the Tata Group's integrated energy strategy.

The company has signed an agreement to provide Tata Steel with 966 MW of

hybrid power projects, with portions expected to be commissioned in FY25 and

the remainder in FY26. Tata Steel's aggressive pursuit of clean energy

underscores the ongoing support and collaboration between the two entities.



RE integration: TPWR's RE initiatives are seamlessly integrated with the Tata

Group's T&D infrastructure, facilitating efficient power evacuation and delivery.

The company’s RE projects also provide a consistent off-take for its PSP,

ensuring reliable energy supply.



Decarbonization initiatives: TPWR aligns with the Tata Group’s sustainability

goals by capitalizing on decarbonization opportunities, thereby enhancing its

environmental credentials and supporting the group's commitment to reducing

carbon emissions.



Data center and semiconductor opportunities: TPWR is well-positioned to meet

the growing energy demand of data centers and semiconductor manufacturing

within the group, utilizing its expertise in energy infrastructure to support these

sectors.



Group-wide projects: TPWR has secured 1.2 GW of energy projects with various

Tata Group companies. This demonstrates its ability to manage large-scale

energy commitments while benefiting from the group's extensive support and

market presence.



Competitive bidding and flexibility: Despite the challenges of competitive

bidding, TPWR enjoys increased flexibility and visibility within the Tata Group,

which help in strategic decision-making and project execution.

TPWR teams up for 600 MW Bhutan Hydroelectric Project



The company in its 1QFY25 earnings call announced that it has finalized an

agreement to execute a 600 MW hydroelectric project in Bhutan in

collaboration with Druk Green Power. This project will generate electricity in

Bhutan, with a portion of the power being consumed domestically during the

winter months and the surplus being sold in India during the summer.

Preliminary work, including statutory approvals and land acquisition, has been

completed, and construction is expected to commence in the latter part of

2024.

TPWR will invest ~INR6.9b in the project for a 40% equity stake.

The company will be responsible for the sale of power in India, as well as project

implementation and operations, in collaboration with Druk Green Power. The

joint execution by both entities would complete the project in five years.

September 2024

Power Utilities: Thematic

Strategic capex plans to drive growth



In 1QFY25, TPWR incurred INR40b in capex, with nearly 60% allocated to RE and

the remaining 40% directed toward T&D. The returns from these investments

are expected to start materializing from 2QFY25 onward.

TPWR has set an ambitious target of investing INR200b in FY25, and the

company is on track to achieve this goal. Of INR200b, ~55-60% will be allocated

to RE initiatives, including the development of a renewable manufacturing plant

and the execution of utility-scale projects, as well as two captive projects.

Around 30% of the investment will be directed toward the T&D business,

encompassing various projects and ongoing distribution efforts in Delhi and

Odisha. The remaining 10-15% will be invested in thermal energy, new

initiatives in pumped hydro, and the Bhutan project. These figures provide a

clear indication of the company's strategic investment priorities.

Exhibit 84:

Exhibit 7: Capex to be spent between FY25-27E

Other

1% Conventional Generation

Pumped

hydro

18%

Exhibit 83:

Exhibit 6: Capex guidelines (INR b)

Capex guidelines (INRb)

200

210

180

WHRS/

GFG

121.8

T&D

16%

Renewable

42%

Source: Company, MOFSL

FY24

FY25E

FY26E

FY27E

Source: Company, MOFSL

Risks



Delays in storage business:

Any delays in the development or deployment of

energy storage solutions could hinder the company's ability to effectively

integrate and manage RE sources.

Mundra plant utilization and Sec XI expiration risks:

Reduced operational

efficiency or lower utilization rates at the Mundra power plant could have an

adverse impact. Sec XI expires on 15th Oct’24 and our base case is it that it will

continue, but if it does not, TPWR could face potential losses of up to INR3b.

Regulatory and compliance risks:

Changes in regulations, tariffs and compliance

requirements could affect profitability and lead to increased operational costs,

particularly in a heavily regulated sector.

Market and revenue risks:

Changes in electricity demand and increased

competition from other power producers could impact TPWR's market share

and pricing strategies. Additionally, the migration of high-end consumers due to

higher tariffs may lead to potential revenue losses for the company.

Cybersecurity and information security threats:

Risks related to cybersecurity

and the potential loss or misuse of sensitive operational and customer data

could disrupt business operations and impact critical systems.

Climate change risks:

Extreme weather events and long-term climate changes

may impact power generation infrastructure and resource availability, such as

hydroelectric power.

September 2024

Power Utilities: Thematic

Valuation



The valuation of TPWR is segmented across various business units, leading to a

target price of INR530/share.

The regulated business is valued using a 2.5x multiple on regulated equity.

The coal segment is valued based on equity with a 1.5x multiple of FY24 Book

value.

The renewables segment is valued at a 14x multiple of projected FY27 EBITDA.

The pumped storage segment is valued at 1x PB and Other segments are also

valued at 1.5x PB. Cash and investments add INR46/share.

The sum of these contributions results in a total target price of INR530/share,

reflecting the comprehensive valuation of TPWR’s diverse business segments.

Exhibit 85:

SOTP Valuation

Segment

Regulated business

Coal

Renewables

Pumped storage

Others

Cash and investments

Target price

CMP

Upside / (Downside)

Metric type

Regulated equity

Equity

FY27 EBITDA

Equity

Metric value

1,04,716

91,254

37,650

Multiple

2.5

1.5x FY24 BV

1x PB

1.5x PB

Value

(INR/sh.)

326

530

454

17%

Source: MOFSL

September 2024

Power Utilities: Thematic

SWOT analysis



Integrated power

company with exposure

to generation,

transmission and

distribution

Strong synergistic

benefits due to

presence across the

value chain



Relatively high

leverage vs. industry

peers can be a concern

given heavy capex

cycle



Set to benefit from

upcoming opportunities

in pumped storage and

solar module segments.

Beneficiary of de-

carbonisation efforts by

the wider Tata Group

Limited listed plays in

case distribution sector

reforms are carried out

in Modi 3.0



Changes in duty structure



for solar modules

Volatility in global coal

prices

Long gestation period for

pumped storage projects

can lead to execution

delays

September 2024

Power Utilities: Thematic

Bull and Bear cases

Bull case

In our Bull case scenario, we anticipate a surge in new EPC orders for solar

projects, coupled with an EBITDA margin improvement to 8.5% (compared to

the base case of 5-6%).



We also raise our target multiple for the renewables business to 18x FY27E

EV/EBITDA.



Based on the above assumptions, the company’s valuation would be INR669/sh.



Bear case



In our Bear case scenario, we anticipate a decline in new EPC order flows, with

EBITDA margin remaining weak at 4% (compared to the base case of 5-6%).



We also lower our target multiple for the renewables business to 10x FY27E

EV/EBITDA.



Based on the above assumptions, the company’s valuation would be INR367/sh.

Exhibit 86:

Scenario analysis – Bull case

INR m

Net revenues

EBITDA

PAT

Target price (INR)

Upside (%)

FY25E

8,43,181

1,46,487

45,131

669

FY26E

9,46,200

1,67,027

53,305

FY27E

10,29,887

1,71,424

55,081

Exhibit 87:

Scenario analysis – Bear case

INR m

Net revenues

EBITDA

PAT

Target price (INR)

Downside (%)

FY25E

7,95,032

1,37,135

38,468

367

FY26E

8,65,311

1,54,597

44,449

FY27E

9,25,651

1,56,401

44,377

Source: MOFSL

September 2024

Power Utilities: Thematic

ESG initiatives

Environment



TPWR aims to turn carbon net zero by FY45 and to become water neutral by

FY30.

The company secured approval from the Science Based Targets initiative

(SBTi) for its short-term objectives, marking it as the only Indian Integrated

Power entity with endorsed SBTi targets. This aligns with the objective of

limiting global temperature rise to below 2°C.

It aims to phase out thermal portfolio before FY45 as Power Purchase

Agreements (PPA’s) for their thermal capacities expire.

Social



TPWR has significantly improved its CSR ranking, moving into the top 10

positions compared to its previous position of 57

last year.

CSR investments of INR706.4m were made across 100 neighborhoods in the

Tata Power Group.

It aims to train 2.1m+ people in digital & financial inclusion by FY28 and to

enable 0.75m+ conservation and STEM education champions by FY28.

CSR initiatives made a positive impact on 6.26m lives across 18 Indian states

during FY24.

The company aims to improve gender diversity to 20% by FY28.

Governance



Composition of the Board is in accordance with the regulatory requirements.

Of its total Board strength of 10 members, 50%/ 20% are

independent/women directors.

The company aspires to improve sustainability disclosures and get listed in

DJSI Emerging Markets list by FY27.

It aims inclusion in the S&P Global Emerging Market list by FY27.

September 2024

Power Utilities: Thematic

Management overview

Dr. Praveer Sinha, CEO & Managing Director



He previously served as the CEO and MD of Tata Power Delhi Distribution where

he was instrumental in driving the turnaround of the DISCOM. He is also the

Chairman of CII Western Region Council and co-chairs the CII National

Committee on Power.

Dr. Sinha is a qualified Electrical Engineer and has also done his Master’s in

Business Law. He received his PhD from IIT, Delhi and is a visiting research

associate at Massachusetts Institute of Technology (MIT), Boston, US.

Mr. Natarajan Chandrasekaran, Non-Independent, Non-Executive Director

& Chairman



Mr. Natarajan Chandrasekaran is the Chairman of the Board of Tata Sons, the

holding company of the Tata Group. He joined Tata Sons in Oct’16 and was

appointed the Chairman in Jan’17.

He is an active member of India’s bilateral business forums including the US, UK,

Australia and Japan. He has served as the Chairman of NASSCOM, the apex

trade body for IT services firms in India in FY13.

Mr. Sanjeev Churiwala, Chief Financial Officer



He brings over 27 years of experience in operational and finance leadership

roles with hands-on experience in managing the entire gamut of finance,

reporting & controlling of listed companies. He was previously associated with

Diageo as Regional Finance Director – APAC & Global Travel Retail.

Mr. Churiwala is an all India rank holder Chartered Accountant, a member of the

ICAI and ICMAI. He did his Executive MBA from the London Business School, UK

Mr. Ashish Khanna, President – Generation



Mr. Khanna joined TPWR in CY07 and has previously led the renewables

business of the company. He is also the Chairman of the National Council for

New and Renewable Energy at ASSOCHAM.

He holds an engineering degree from the Delhi Technological University and

completed his Master’s in Management and Systems from IIT, Delhi in CY97.

Mr. Sanjay Banga, President – T&D



Mr. Sanjay Banga leads the Transmission and Distribution (T&D) cluster at TPWR

and is responsible for eight Board-managed companies in Tata Power. Before

being elevated to his current role, he was the CEO of Tata Power Delhi

Distribution.

Mr. Deepesh Nanda, President – Renewables



Mr. Nanda is the President of Renewables division of the company. Previously

he led General Electric's (GE) Gas Power business for South Asia. He holds an

MBA from The Open University Business School in the UK.

September 2024

Power Utilities: Thematic

Financials and valuations

Consolidated Income Statement

Y/E March

Net Sales

Change (%)

Total Expenses

EBITDA

% of Net Sales

Depn. & Amortization

EBIT

Net Interest

Other income

PBT before EO

Regulatory inc./(exp)

EO expense (inc.)

PBT after EO

Tax

Rate (%)

Reported PAT

Minority,

Adjusted PAT

Change (%)

Consolidated Balance Sheet

Y/E March

Share Capital

Reserves

Net Worth

Minority Interest

Total Loans

Deferred Tax Liability

Capital Employed

Gross Block

Less: Accum. Deprn.

Net Fixed Assets

Capital WIP

Goodwill

Investments

Curr. Assets

Inventories

Account Receivables

Cash and Bank Balance

Others

Curr. Liability & Prov.

Account Payables

Provisions & Others

Net Curr. Assets

Appl. of Funds

FY22

4,28,157

30.9

3,53,045

75,112

17.5

31,222

43,890

38,590

9,200

14,499

-2,395

6,181

5,923

3,796

64.1

19,428.3

21,556

4,142

23,776

56.3

FY23

5,51,091

28.7

4,74,028

77,063

14.0

34,392

42,671

43,717

14,380

13,335

9,241

22,575

16,473

73.0

31,994.6

38,097

4,732

38,097

60.2

FY24

6,14,489

11.5

5,06,651

1,07,838

17.5

37,864

69,974

46,332

18,234

41,876

934

2,734

45,544

14,519

31.9

11,775.7

42,801

5,839

40,939

7.5

FY25E

8,03,225

30.7

6,64,165

1,39,060

17.3

41,566

97,495

49,884

14,262

61,873

-4,840

57,033

17,164

30.1

10,251

50,120

8,014

50,120

22.4

FY26E

8,93,448

11.2

7,35,069

1,58,379

17.7

47,757

1,10,622

59,233

14,684

66,073

18,929

28.6

12,377

59,521

8,746

59,521

18.8

(INR m)

FY27E

9,64,562

8.0

8,02,484

1,62,077

16.8

51,487

1,10,591

58,559

15,280

67,312

18,890

28.1

12,614

61,035

7,237

61,035

2.5

(INR m)

FY27E

3,196

4,38,275

4,41,471

80,074

8,30,129

27,723

13,79,397

12,94,621

4,60,178

8,34,443

3,11,688

17,575

1,68,734

5,73,491

47,318

1,25,897

1,65,342

2,34,934

5,26,534

1,30,062

3,96,472

46,957

13,79,397

FY22

3,196

2,21,220

2,24,416

35,869

4,75,900

10,333

7,46,518

8,04,423

2,49,112

5,55,311

46,351

18,583

1,37,498

3,69,967

42,315

59,797

70,512

1,97,342

3,81,193

1,04,596

2,76,597

-11,226

7,46,518

FY23

3,196

2,84,679

2,87,874

54,167

4,89,744

19,194

8,50,979

8,80,388

2,81,504

5,98,884

53,764

18,583

1,55,201

4,55,924

39,429

69,522

1,23,561

2,23,412

4,31,376

74,072

3,57,304

24,548

8,50,979

FY24

3,196

3,20,357

3,23,553

59,775

4,94,798

27,723

9,05,849

9,73,889

3,19,368

6,54,521

1,15,613

17,575

1,48,381

4,59,445

44,196

74,017

1,06,298

2,34,934

4,89,686

93,214

3,96,472

-30,241

9,05,849

FY25E

3,196

3,54,474

3,57,670

66,556

6,39,748

27,723

10,91,697

11,20,229

3,60,934

7,59,295

1,71,438

17,575

1,52,081

4,91,239

45,149

87,283

1,23,873

2,34,934

4,99,930

1,03,458

3,96,472

-8,691

10,91,697

FY26E

3,196

3,94,862

3,98,058

74,070

7,33,463

27,723

12,33,314

12,61,974

4,08,691

8,53,283

1,85,188

17,575

1,56,121

5,35,621

46,359

1,07,815

1,46,513

2,34,934

5,14,473

1,18,001

3,96,472

21,148

12,33,314

September 2024

Power Utilities: Thematic

Financials and valuations

Ratios

Y/E March

Basic (INR)

EPS

Cash EPS

BV/Share

DPS

Payout (%)

Dividend yield (%)

Valuation (x)

P/E

Cash P/E

P/BV

EV/EBITDA

Dividend Yield (%)

FCF (pre-int) to EV yield (%)

Return Ratios (%)

RoE

RoCE (post-tax)

RoIC (post-tax)

Working Capital Ratios

Fixed Asset Turnover (x)

Asset Turnover (x)

Debtor (Days)

Inventory (Days)

Leverage Ratio (x)

Net Debt/EBITDA

Debt/Equity

Consolidated Cash Flow Statement

Y/E March

EBITDA

Others

Direct taxes (net)

CF from Op. Activity

Capex

FCF

Int & div income

Investments(subs/JVs)

Others

CF from Inv. Activity

Share capital

Borrowings

Finance cost

Dividend

Others

CF from Fin. Activity

(Inc)/Dec in Cash

Opening balance

Closing balance

FY22

7.4

17.2

70.2

1.8

23.5

0.7

59.6

25.8

6.3

24.7

0.4

0.7

11.0

6.8

3.4

0.8

0.6

5.4

1.6

FY23

11.9

22.7

90.1

2.0

16.8

1.1

37.2

19.5

4.9

23.8

0.5

1.7

14.9

5.1

2.4

0.9

0.6

4.8

1.1

FY24

12.8

24.7

101.2

2.0

15.6

0.5

34.6

18.0

4.4

17.3

0.5

1.2

13.4

8.4

9.4

0.9

0.7

3.6

1.0

FY25E

15.7

28.7

111.9

2.5

15.9

0.6

28.3

15.5

4.0

14.4

0.6

-3.4

14.7

9.5

11.9

1.1

0.7

3.7

1.2

FY26E

18.6

33.6

124.6

3.3

17.4

0.7

23.8

13.2

3.6

13.1

0.7

0.0

15.8

9.2

11.7

1.0

0.7

3.7

1.2

FY27E

19.1

35.2

138.1

3.3

17.0

0.7

23.2

12.6

3.2

13.3

0.7

-0.4

14.5

8.2

11.0

1.2

0.7

4.1

1.3

(INR m)

FY27E

1,62,077

-6,981

-18,890

1,36,207

-1,59,147

-22,941

15,280

-1,43,867

96,666

-58,559

-11,619

26,489

18,828

1,46,513

1,65,342

FY22

72,717

-1,886

3,044

-6,947

66,927

-72,679

-5,751

20,068

-3,893

8,218

-48,285

113

41,570

-35,552

-5,585

-12,379

-11,832

6,811

63,702

70,513

FY23

86,304

-9,857

3,852

-8,707

71,591

-76,560

-4,969

36,253

5,342

3,015

-31,950

40,084

11,690

-41,084

-7,869

10,587

13,408

53,050

70,512

1,23,562

FY24

1,08,773

19,275

3,808

-5,895

1,25,961

-1,33,328

-7,366

29,774

2,457

2,846

-98,250

1,139

5,126

-47,765

-8,868

5,394

-44,974

-17,263

1,23,561

1,06,298

FY25E

1,34,221

-3,974

-17,164

1,13,082

-2,02,164

-89,082

20,813

-1,81,351

1,44,950

-49,884

-9,222

85,844

17,575

1,06,298

1,23,873

FY26E

1,58,379

-7,199

-18,929

1,32,250

-1,55,495

-23,244

23,021

-1,32,474

93,715

-59,233

-11,619

22,863

22,640

1,23,873

1,46,513

September 2024

Initiating Coverage | Sector: Power Utilities

Power Utilities: Thematic

JSW Energy

BSE Sensex

84,929

S&P CNX

25,939

CMP: INR782

TP: INR917 (+16%)

Buy

Solid execution, ambitious vision drive growth



Stock info

Bloomberg

Equity Shares (m)

M.Cap.(INRb)/(USDb)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

12M Avg Val (INR M)

Free float (%)

JSW IN

1748

1282.4

/ 15.4

790 / 348

6/42/62

2377

30.7



Financial Snapshot (INR b)

Y/E March

Sales

EBITDA

Adj. PAT

EPS (INR)

EPS Gr.%

BV/Sh. (INR)

Ratios

Net D:E

RoE (%)

RoCE (%)

Payout (%)

Valuation

P/E (x)

P/B (x)

EV/EBITDA (x)

Div. yield (%)

FCF yield (%)

FY24

114.9

53.8

17.2

10.5

24.2

127.0

1.2

8.7

7.7

19.0

74.4

6.2

28.7

0.3

-1.2

FY25E

152.8

82.2

29.4

17.9

70.3

142.0

1.4

13.3

9.4

15.1

43.7

5.5

19.7

0.3

-5.6

FY26E

171.8

96.2

34.2

20.8

16.3

159.8

1.5

13.8

9.6

14.4

37.6

4.9

17.5

0.4

-4.3



We initiate coverage on JSWE with a BUY rating and a TP of INR917. JSWE

is a RE generation focused play and its installed RE capacity is expected to

rise to 9.8GW by CY24 end (FY24: 7.3GW) and further to ~17GW by FY27

end. The group aims to increase its installed RE capacity to 20GW by 2030;

however, we strongly believe that it will achieve this target before time,

given 4.9GW of MoU signed with JSW Steel and a significant step-up in bid

awards by SECI for RE projects recently. Further, JSWE’s wind asset

expertise places it in a favorable position as more lucrative opportunities

shift toward RTC/hybrid projects over plain vanilla RE projects.

JSWE is undergoing a transformational shift as RE capacity will rise from

61% in FY25 to 83% by 2030. About 85% of the generation capacity is tied

up under long-term contracts, which provides strong cash flow visibility.

This places JSWE in favorable position given the capex uptrend in the

sector. JSWE boasts a strong operational record as evident from a

turnaround in operations and profitability at the Mytrah and Ind-Barath

assets acquired in FY23.

We estimate an EBITDA CAGR of 35% over FY24-27, with upside risks from

the company’s 1.4GW merchant capacity exposure. Further, JSWE has a

strong balance sheet with a sustainable net debt-to-EBITDA ratio of 2.2x as

of FY24; this gives it a formidable ~1-1.25% interest cost advantage over

other private IPPs.

JSWE is trading at 17.5x FY26E EV/EBITDA. While valuations are not

inexpensive, they could be sustained provided key projects are executed

on time and within budget and the installed capacity outlook continues to

improve. We value JSWE’s core business at 15x Dec’26E EBITDA and its

stake in JSW Steel is valued at a 25% discount to CMP, leading to a TP of

INR917/share.

As of 4QFY24, the company's installed capacity stood at 7.3GW, which is

expected to increase to 9.8GW as new projects are scheduled for

commissioning by the end of CY24.

Out of the total 9.8GW generation capacity, 39% will come from thermal

energy sources and the remaining will come from RE sources. The company

aims to achieve 20GW of power generation capacity and 40 GWh of storage

capacity by FY30.

Additionally, operations for green hydrogen production are expected to

commence in CY25. As such, the commencement of new projects is

expected to drive an EBITDA CAGR of 35% during FY24-27.

After FY26, growth will be powered by, among other things, the group’s

recent foray into pumped storage production, for which JSWE plans to have

an installed capacity base of 5GW. This compares with the all-India level

target of 27GW pumped storage capacity by FY32 as per the National

Electricity Plan 2023.

Shareholding pattern (%)

As On

Jun-24 Mar-24 Jun-23

Promoter

69.3

73.7

74.7

DII

9.2

9.5

10.3

FII

15.6

8.6

5.4

Others

5.9

8.2

9.6

FII Includes depository receipts

Stock performance (one-year)

Ambitious growth plans to drive 35% EBITDA CAGR during FY24-27



September 2024

Power Utilities: Thematic

Well-funded balance sheet and strong visibility on cash flows



Currently, 85% of the company's generation capacity is under contractual

agreements, providing strong visibility on cash flows. Additionally, the average

remaining term for various power purchase agreements is ~18 years. The

company maintains a robust and diversified base of off-takers, with group

captive projects accounting for 22% of the power sold.

JSWE also benefits from competitive financing costs, averaging around 8.6%,

which serves as a significant advantage when bidding for RE projects.

Given a positive outlook for merchant power prices, JSWE had ~11% of its

capacity uncontracted as of 4QFY24, which we see as an upside risk to its

earnings.

With a strong balance sheet and healthy cash flows, the company is capable of

pursuing growth using internal accruals while maintaining leverage within the

guided range. As of FY24, the net debt-to-EBITDA ratio (excluding construction

work in progress) stood at 4.8x, which falls within the lower end of the guided

range of 4.5-5.0x.

Strong track record of turning around assets



In FY23, JSWE acquired the assets of Mytrah, which included both wind and

solar generation assets totaling 1753 MW in capacity. The transaction valued

the Mytrah Energy portfolio at INR105b. These assets are expected to remain

operational for ~17 more years.

JSWE is currently revitalizing these plants and actively implementing cost-

optimization and profitability-improvement initiatives. Our projections suggest

an estimated EBITDA of INR13.7b from these assets in FY25.

Additionally, in FY23, JSWE acquired Ind-Barath Energy (Utkal) through a debt

resolution process. Utkal is a thermal plant with a capacity of 700 MW.

Currently, Unit 1 is operational and Unit 2 is anticipated to begin operations by

the end of 1HFY25. This acquisition provides the company with nearly 700 MW

of exposure to the merchant power market, where the price outlook is expected

to remain robust in the forthcoming years.

New project commissioning to drive 35% EBITDA CAGR over FY24-27



JSWE is projected to achieve an EBITDA CAGR of 35% over FY24-27, driven by its

focus on RE generation. The company's installed RE capacity is expected to

reach ~17GW by FY27 end, with a longer-term goal of 20GW by 2030. Given the

4.9GW MOU signed with JSW Steel and a notable increase in bid awards for RE

projects by SECI, it is anticipated that JSWE will surpass this target ahead of

schedule.

Valuation and risks



We value JSWE's core business at 15x Dec’26E EV/EBITDA and its stake in JSW

Steel is valued at a 25% discount to CMP, leading to a TP of INR917/share.

Key risks to our earnings estimates and TP stem from: 1) slower-than-expected

commissioning of key projects, 2) limited progress on green business value-

unlocking, 3) weaker-than-expected return profile for renewable projects

September 2024

Power Utilities: Thematic

STORY IN CHARTS

Current locked in capacity + MoU with JSW Steel already above 20GW target

Generation capacity (GW)

22.38

7.5

2.3

Current operational

Under Constuction

7.7

4.88

Pipeline Projects

MOU with JSW Steel

FY30Target

Current Locked-in +

MOU with JSW Steel

Diversified Off-takers

22%

25%

Mytrah turnaround boasts strong execution ability

EBITDA (INRb)

Net debt/ EBITDA

16.5

12.4

11.9

7.7

7.2

5.2

20%

Pre-Acquisition

FY23

Normalised

Leverage trending up amid capacity expansion

Consol Net Debt/Equity

Consol Net Debt/EBITDA

6.0

4.7

4.0

3.3

2.6

1.2

1.8

1.0

0.8

0.5

0.4

1.1

1.2

1.4

1.5

2.0

Capex ramp-up driven by 20GW capacity target

Opr. cash flows after WC change (INR b)

Consol Capex (INR b)

130

4.5

125

130

115

4.8

4.1

FY18 FY19 FY20 FY21 FY22 FY23 FY24 FY25E FY26E FY27E

September 2024

Power Utilities: Thematic

Energy Storage (GWh)

Energy storage (GWh)

Capacity breakdown by 1QFY25 end

Under construction (MW)

3508

Installed (MW)

1715

1962

1391

675

240

350

Thermal

Wind

Hydro

Solar

Consolidated generation

Consol Generation GW

6.8

5.7

5.1

4.3 4.3

4.2

4.9

6.8

5.6

7.0

Standalone generation

SA Generation GW

3.1 3.1 3.1

3.0

2.8

2.7

2.6

5.3 5.2 5.2

2.1

2.2

2.3

2.0

2.2

1.8

Source: Company, MOFSL

September 2024

Power Utilities: Thematic

Company overview



JSWE is one of India's largest power generation companies with an installed

capacity of 7.5GW as of 1QFY25 end. During the FY10-24 period, JSWE's

installed capacity and EBITDA have clocked a CAGR of 16% and 11%,

respectively. The company aims to increase its installed capacity to 20GW by

2030, with RE accounting for 2/3rd of the total installed capacity. Over the

years, JSWE has strategically diversified from conventional thermal assets to

renewable assets. The company has a strong operational and capital allocation

track record, demonstrated by its successful acquisition of stressed assets such

as Mytrah (1.7 GW) and Ind-Barath (0.7 MW) in recent years.

JSWE is advancing its value chain by moving beyond traditional solar/wind

projects to more sophisticated, round-the-clock and firm day-ahead renewable

energy (FDRE) projects.

Exhibit 88:

JSWE’s installed capacity

Installed capacity (MW)

6564

7245

4541

4559

Source: Company, MOFSL

Exhibit 89:

Consolidated EBITDA

Consol. EBITDA (INR m)

Source: Company, MOFSL

Strong capacity growth roadmap



Locked-in capacity of 17.6GW (1QFY25 installed capacity: 7.5GW):

As of

1QFY25, the company's installed capacity stood at 7.5GW, which is expected to

increase to 10GW as new projects are commissioned by CY24 end. The project

pipeline (excluding Group captive MOU) stands at 7.7GW currently. Its total

locked-in capacity stands at 17.6GW, which we believe will be commissioned by

FY28.

Medium-term vision of 20GW installed capacity:

Out of the total 10GW

generation capacity slated to start by FY25 end, 39% will come from thermal

September 2024

Power Utilities: Thematic

energy sources and the remaining will come from RE sources. The company aims

to achieve 20GW of power generation capacity and 40GWh of storage capacity

by FY30. The shift in the business model, lower fuel price risk and high certainty

of earnings and cash flows can be instrumental in driving and sustaining

valuations, in our view.

Exhibit 90:

Thermal Assets Offtaker Profile (3,858MW)

Offtaker profile

Group Captive

30%

Open

34%

3,858mw

MSDECL

Rajasthan

28%

Source: Company, MOFSL



Green Hydrogen, PSP and JSW Steel are medium-term growth engines:

The

green hydrogen project for JSW Steel (capacity: 3,800tpa) is expected to be

commissioned by FY25. Further, JSWE has a MoU with JSW Steel for up to 6.2

GW of RE, of which 1.32GW has already been secured. JSW Steel has a current

steel capacity of 34.2mt, which could rise to 50mt by FY31. After FY26, growth

will be powered by, among other things, the group's recent foray into pumped

storage production, for which JSWE plans to have an installed capacity base of

5GW. This compares with the all-India level target of 27GW pumped storage

capacity by FY32, as per the National Electricity Plan 2023.

Exhibit 91:

Energy Storage (GWh)

Energy storage (GWh)

77.1

2.4

3.4

2.7

SECI

PCKL

Total Locked-in MoU with JSW PSP MoU with

steel

states

2030 Target

Source: Company, MOFSL

BESS – PPA signed for 250MW/500MWh with SECI

PSP – LoI received for 2.4GWh from Power Company of Karnataka Limited

Shift in business mix to create value



As of 1QFY25 end, RE formed 53% of installed capacity base:

JSWE’s installed

capacity currently stands at 7.5GW. This includes 1.9GW of wind power, 1.4GW

of hydro power, and 0.7GW of solar power. Collectively, these RE sources

account for a total of 4GW, representing ~53% of the company's total installed

capacity.

September 2024

Power Utilities: Thematic



RE proportion to rise to 61%/83% by end FY25/FY30:

We expect RE to form

61% of capacity base by end FY25 mainly due to the start-up of 1.7GW of Wind

projects and 0.24GW of hydro projects. In the long term, JSWE has a target of

20GW in total installed capacity, of which the company targets to have 83% in

renewable energy.

RE projects create "value" for the company:

We believe RE assets have the

following advantages over thermal and these are key to a valuation re-rating: 1)

a shorter gestation period with PPA award to commissioning typically entailing

two years, 2) stable cash flows and earnings given no fuel price risk, and 3)

easier availability of finance at competitive rates.

Strong execution ability gives confidence of vision translating to reality



Strong execution track record:

Project execution is the unique selling

proposition of JSW Group. The group boasts strong in-house teams, including

techno-commercial, procurement, and project management teams. Over the

last two decades, the group has developed and honed these capabilities. The

company has learned not to outsource EPC contracts but instead build projects

in-house. This strategy helps save on margins and lowers capex per unit. Instead

of offering turnkey contracts, it prefers package-based approaches. JSWE also

acquires land independently and its significant scale provides substantial buying

power.

History of turning around troubled assets:

JSW Group has a history of acquiring

underperforming assets and successfully turning them around. In the past, its

steel business acquired and revitalized plants such as Dolvi (2010) and Monnet

Ispat (2018). On the same lines, in 1HFY23, JSWE announced its acquisition of

Mytrah Energy (India), which faced technical, operational and financial

challenges.

Mytrah on the path to robust financial turnaround:

The Mytrah acquisition was

done at an enterprise valuation of ~INR105b and the portfolio included 17 wind

and Solar SPVs with a total generation capacity of 1,753 MW, located across

south, west, and central India. These assets had long-term power purchase

agreements (PPAs) with an average remaining life of ~18 years at the time of

acquisition. At the time of acquisition, many of Mytrah's assets were

inadequately maintained, and the company faced cash flow issues, resulting in

poor upkeep of machinery. Around 250 MW of the 1,753 MW installed capacity

was non-functional, and upgrades were needed for the solar assets as well.

After the acquisition, JSWE has worked on turning this asset around and its

EBITDA is set to rise from INR14b in FY24 to INR16.5b by FY25.

After Mytrah, Ind-Barath assets too set for turnaround:

Similarly, in FY23, JSWE

acquired Ind-Barath, which owned a 700 MW thermal power plant situated in

Odisha, comprising two 350 MW units. Unit-I, commissioned in 2016, had been

non-operational due to financial difficulties at Ind-Barath, while Unit-II remained

uncommissioned. The acquisition was valued at INR10.4b. The first unit was

commissioned by JSWE in 4QFY24 and the second unit is scheduled for

commissioning by FY25. This will enhance the company's ability to diversify its

fuel mix, expand its geographical footprint, and optimize its off-take

arrangements.

September 2024

Power Utilities: Thematic

Exhibit 92:

Mytrah – Underlying Normalized Net Debt /EBITDA at 5.2x

EBITDA (INRb)

Net debt/ EBITDA

16.5

12.4

7.7

11.9

7.2

5.2

Pre-Acquisition

FY23

Normalised

Source: Company, MOFSL

Earnings upside risk from 1.4GW of merchant capacity



As of FY24 end, JSWE has a total merchant capacity of ~1GW, which formed 13%

of total installed capacity as of 1QFY25 end. Additionally, the merchant capacity

will be further boosted by the start of unit 2 (350MW) of Ind Barath plant.

As per data from IEX, day-ahead-market (DAM) prices in FY24 were down 12%

YoY. In 1QFY25, DAM prices on average were up 2% YoY. The outlook for

merchant prices remains strong given total/peak power demand in India is

expected to grow at 1-1.2x real GDP growth rate. Current peak demand is

250GW and by 2030, it is expected to rise to 400GW.

Exhibit 93:

Ind-Barath (Utkal) gives merchant exposure

Installed capacity (MW)

1200

1105

1080 1080

860

700

338

Ratnagiri

Barmer

Vijayanagar

Utkal

Source: Company, MOFSL

PPA tied (MW)

Prudent capital allocation, moderate leverage key differentiators



Sustainable ND/EBITDA (ie ex CWIP) stood at 2.2x at end FY24.

Currently, 85% of the company's generation capacity is under contractual

agreements, providing strong visibility on cash flows. Additionally, the average

remaining term for various PPAs is ~18 years. The company maintains a robust

and diversified base of off-takers, with group captive projects accounting for

22% of power sales. This we believe is instrumental in enhancing EBITDA

visibility and keeping leverage related concerns, if any, in check.

JSWE also benefits from competitive financing costs, averaging around 8.6%,

which serves as a significant advantage when bidding for RE projects. As of

1QFY25, the net debt-to-EBITDA ratio (excluding CWIP) stood at 2.2x, which was

well below the guided range of 3.5-4.0x.

September 2024

Power Utilities: Thematic

Exhibit 94:

JSWE’s net debt/EBITDA and net debt/Equity

Consol Net Debt/Equity

Consol Net Debt/EBITDA

6.0

4.7

4.0

3.3

2.6

1.2

1.8

1.0

0.8

0.5

FY21

1.1

0.4

FY22

FY23

FY24

FY25E

FY26E

FY27E

4.8

4.1

2.0

4.5

1.2

1.4

1.5

FY18

FY19

FY20

Source: Company, MOFSL

Risks



Risks associated with RE investments: The transition to RE involves balancing

new investments with existing fossil fuel assets. Market volatility and policy

changes could impact the profitability and success of these RE projects.

Regulatory uncertainty: The power sector's profitability is influenced by

government tariffs and regulations. Changes in government policies could affect

the company's financial outcomes.

Exceeding power demand growth expectations: Stronger-than-expected growth

in power demand could lead to a positive deviation from the target share price.

Environmental compliance challenges: JSWE must adhere to strict

environmental regulations. Failure to manage emissions, water usage, and

waste effectively could result in penalties and legal issues.

Improved clarity on RE capacity: Greater visibility into the long-term RE capacity

pipeline may support share performance.

We value JSWE's core business at 15x Dec’26 EBITDA, reflecting its strong

operational performance and market position (FY27 EBITDA discounted for 3

months at 9%).

The stake in JSW Steel is valued at a 25% discount to the current market price,

acknowledging the strategic significance of this holding while incorporating a

conservative valuation approach.

By aggregating the values from these different components, the total equity

value of JSWE Energy was determined, leading to a TP of INR917/share.

Units

INR m

(x)

INR m

INR/Share

INR/share

Amount

1,28,975

19,97,824

5,43,953

14,53,871

51,688

15,05,560

917

792

Source: MOFSL

Valuation



Exhibit 95:

SOTP Valuation

Particulars

Core EBITDA - Dec-26

Valuation multiple

Less: Net Debt

Market cap

JSW Steel stake*

Total Equity value

Target price

CMP

*At 25% discount

September 2024

Power Utilities: Thematic

SWOT analysis



Diversified Portfolio with

7.5GW Installed Capacity

and 17.6GW of locked in

capacity.

Strong cash flow and

earnings visibility with

bulk of capacity backed by

PPAs.

Strong execution track

record underpins vision to

reach 20 GW capacity in

medium term.



Despite diversification

efforts, thermal still

forms ~39% of overall

installed capacity (end

FY24).



Well placed to capture

new opportunities in

battery storage, Green

Hydrogen and other

renewable projects.



Energy sector is highly

competitive, with both

domestic and

international players,

which could pressure

margins and profitability.

Pumped hydro projects

can have long gestation

period with multiple

approvals required



September 2024

Power Utilities: Thematic

Bull and Bear cases

Bull case

In our Bull case scenario, we project a ~10% higher Load Factors (PLF) across key

plants such as Ratnagiri, Vijay Nagar and Baspa and model 50-70% rise in

merchant tariffs across plants. We also build in higher than guided financial ram-

up at Mytrah.



Based on the above assumptions, the company’s valuation would be

INR1,115/sh.



Bear case



In our Bear case scenario, we anticipate a 10% decline in PLF across key plants

such as Ratnagiri, Vijay Nagar and Baspa and model a 40-50% decline in

merchant tariffs across plants. We also build in lower than guided financial

ramp-up at Mytrah.



Based on the above assumptions, the company’s valuation would be INR579/sh.

Exhibit 96:

Scenario analysis – Bull case

INR m

Net revenues

EBITDA

PAT

Target price (INR)

Upside (%)

FY25E

1,62,805

89,271

35,007

1,115

Source: MOFSL

FY26E

1,82,350

1,03,827

40,212

FY27E

2,22,479

1,36,334

36,765

Exhibit 97:

Scenario analysis – Bear case

INR m

Net revenues

EBITDA

PAT

Target price (INR)

Downside (%)

FY25E

1,45,613

78,942

26,802

579

Source: MOFSL

FY26E

1,63,227

93,005

31,615

FY27E

2,01,343

1,24,987

28,255

September 2024

100

Power Utilities: Thematic

ESG initiatives

Environment



JSW Energy is committed to being carbon neutral by FY50.

It aims to increase the proportion of renewable energy to two-thirds of their

total installed capacity by FY30.

The transition from wet module cleaning to dry cleaning has led to notable

conservation of groundwater, saving ~2,400 cubic meters per month for the

company.

The company aims to achieve a 50% reduction in water consumption per unit of

energy generated by FY30.

Social



Project Charkha has provided training to over 460 women artisans in Sholtu and

Kutehr.

A total of 2,243 students across 21 schools received benefits through

Foundational Literacy and Numeracy and extracurricular activities.

After rejuvenation of a lake in Vadagapatti, 1,800 people benefitted from

increased water availability.

Sports kits were distributed to 3,100 students attending government schools in

Dharapuram and Tuticorin.

Governance



All members of the audit/nomination and remuneration committees are

independent directors.

The composition of the Board of Directors meets the requirement of SEBI

(Listing obligations and disclosure requirements) Regulations, 2015.

September 2024

101

Power Utilities: Thematic

Management overview

Mr. Sajjan Jindal, Chairman and Managing Director



Mr. Jindal is the CMD and also the principal promoter of the company. Under his

leadership, the JSW Group over the years has expanded in other core sectors of

the economy.

He is the founder of JSW Foundation, which is committed to providing

opportunities to bridge the socio-economic divide and create equitable and

sustainable communities.

Mr. Sharad Mahendra, Joint Managing Director & CEO



Mr. Mahendra has been associated with the JSW Group for 15 years and was

the CEO of JSW Steel Coated Products Ltd. prior to becoming CEO of JSW

Energy. He was the COO of JSW Energy in CY17 and subsequently appointed as a

WTD in CY19.

He completed his B.E. in Mechanical Engineering from NIT, Allahabad.

Previously, he has been on the Board of APL Apollo Tubes and had worked in

PCBL, JSW Steel, Escorts, and Yamaha Motors in various capacities.

Mr. Pritesh Vinay, Director (Finance) & CFO



Mr. Vinay has 22 years of experience across Corporate Finance, Fund Raising,

Investor Relations, M&A and Equity Research. He has been associated with the

JSW Group for more than 10 years. Earlier he was the VP - Corporate Finance at

JSW Steel and Head - Investor Relations at JSW Group.

He is a B.E. (Computer Science & Engineering) from Bihar Institute of

Technology, Sindri and completed his Master of Management Studies (Finance)

from Sydenham Institute of Management Studies, Mumbai University. He has

also worked with Goldman Sachs (India) and the Aditya Birla Group.

Mr. Ashok Ramachandran, WTD and COO



Mr. Ramachandran has over 18 years of experience. Previously, he was the

President and CEO at Schindler India from Jul’18 onwards. He was the youngest

CEO in Schindler Worldwide and one of the youngest MNC CEOs in India. He was

awarded ET 40 under Forty by Economic Times in CY19.

He is a Master of Engineering (Industrial Engineering) from Swinburne University

of Technology, Melbourne, Australia and a Bachelor of Engineering

(Instrumentation & Control Engineering) from University of Madras, S.R.M

Engineering College, Chennai. He is also a motivational speaker.

September 2024

102

Power Utilities: Thematic

Financials and valuations

Consolidated Income Statement

Y/E March

Net Sales

Change (%)

EBITDA

% of Net Sales

Depreciation

EBIT

Net Interest

Other income

PBT before EO

EO expense

PBT after EO

Tax

Rate (%)

Reported PAT

Minority

Adjusted PAT

Change (%)

Consolidated Balance Sheet

Y/E March

Share Capital

Reserves

Net Worth

Minority Interest

Total Loans

Deferred Tax Liability

Capital Employed

Gross Block

Less: Accum. Deprn.

Net Fixed Assets

Capital WIP

Goodwill

Investments

Curr. Assets

Inventories

Account Receivables

Cash and Bank Balance

Others

Curr. Liability & Prov.

Account Payables

Provisions & Others

Net Curr. Assets

Appl. of Funds

FY20

82,727

-9.5

29,569

35.7

11,681

17,888

10,511

2,870

10,247

-2,656

12,904

2,372

18.4

280.4

10,812

-187

8,644

26.3

FY21

69,222

-16.3

29,066

42.0

11,669

17,396

8,957

2,375

10,814

2,759

25.5

171.5

8,227

272

8,227

-4.8

FY22

81,672

18.0

35,690

43.7

11,311

24,380

7,769

5,687

22,297

4,948

22.2

85.4

17,435

149

17,435

111.9

FY23

1,03,318

26.5

32,818

31.8

11,692

21,126

8,443

5,352

18,036

-1,200

19,236

4,627

24.1

192.9

14,801

13,890

-20.3

FY24

1,14,859

11.2

53,818

46.9

16,334

37,484

20,534

4,554

21,504

4,423

20.6

165.1

17,247

24.2

FY25E

1,52,827

33.1

82,190

53.8

24,718

57,471

24,926

4,237

36,781

7,565

20.6

165.1

29,382

70.4

FY26E

1,71,809

12.4

96,223

56.0

29,065

67,158

28,584

4,237

42,811

8,805

20.6

165.1

34,171

16.3

(INR m)

FY27E

2,11,386

23.0

1,31,877

62.4

42,773

89,104

48,998

4,237

44,343

11,086

25.0

165.1

33,422

-2.2

(INR m)

FY27E

16,412

2,74,059

2,90,471

1,883

6,18,266

18,536

9,29,157

7,72,852

1,98,699

5,74,153

2,45,206

6,398

59,458

1,08,251

10,425

11,583

26,792

59,452

64,309

31,853

32,456

43,942

9,29,157

FY20

16,419

1,00,037

1,16,456

-238

1,07,531

3,705

2,27,453

2,11,866

51,137

1,60,729

3,913

6,398

10,990

69,088

6,396

21,032

9,448

32,213

23,665

6,903

16,762

45,423

2,27,453

FY21

16,423

1,28,647

1,45,070

-87

86,852

6,081

2,37,916

2,12,775

62,806

1,49,969

4,728

6,398

33,402

69,866

3,951

13,012

11,634

41,268

26,448

6,083

20,365

43,418

2,37,916

FY22

16,397

1,57,752

1,74,149

90,246

8,923

2,73,338

2,16,025

74,116

1,41,908

20,906

6,398

51,946

88,166

9,010

12,147

25,265

41,745

35,986

9,562

26,424

52,180

2,73,339

FY23

16,405

1,69,883

1,86,288

1,054

2,48,172

10,784

4,46,298

3,29,615

85,809

2,43,807

47,795

6,485

49,616

1,39,714

9,871

16,314

50,850

62,679

41,119

12,741

28,378

98,595

4,46,298

FY24

16,412

1,91,905

2,08,317

1,825

3,13,266

13,390

5,36,798

3,85,207

1,02,143

2,83,064

1,02,851

6,398

59,458

1,30,920

8,307

10,205

52,957

59,452

45,893

13,437

32,456

85,028

5,36,798

FY25E

16,412

2,16,675

2,33,087

1,844

3,68,266

14,334

6,17,531

5,13,646

1,26,861

3,86,785

1,04,412

6,398

59,458

1,11,777

10,049

10,468

31,808

59,452

51,298

18,842

32,456

60,479

6,17,531

FY26E

16,412

2,45,741

2,62,154

1,864

4,13,266

15,432

6,92,716

5,43,249

1,55,926

3,87,323

1,99,809

6,398

59,458

95,720

10,356

9,414

16,498

59,452

55,992

23,536

32,456

39,728

6,92,716

September 2024

103

Power Utilities: Thematic

Financials and valuations

Ratios

Y/E March

Basic (INR)

EPS

Cash EPS

BV/Share

DPS

Payout (%)

Dividend yield (%)

Valuation (x)

P/E

Cash P/E

P/BV

EV/EBITDA

Dividend Yield (%)

FCF (pre-interest) to EV (%)

Return Ratios (%)

RoE

RoCE (post-tax)

RoIC (post-tax)

Working Capital Ratios

Fixed Asset Turnover (x)

Asset Turnover (x)

Debtor (Days)

Inventory (Days)

Working Capital Turnover (Days)

Leverage Ratio (x)

Net Debt/EBITDA

Debt/Equity

Consolidated Cash Flow Statement

Y/E March

EBITDA

FX gain/loss

Others

Direct taxes (net)

CF from Op. Activity

Capex

FCFF

Interest income

Others

CF from Inv. Activity

Share capital

Borrowings

Finance cost

Dividend

Others

CF from Fin. Activity

(Inc)/Dec in Cash

Opening balance

Closing balance (as per B/S)

FY20

5.3

12.4

71.0

1.0

19.0

2.4

148.4

63.1

11.0

46.7

0.1

1.4

7.4

7.8

7.3

0.5

0.4

FY21

5.0

12.1

88.5

2.0

39.9

2.3

155.9

64.5

8.8

46.7

0.3

2.5

6.3

7.3

6.8

0.5

0.3

FY22

10.6

17.5

106.2

2.0

18.8

0.7

73.6

44.6

7.4

37.8

0.3

0.5

10.9

9.8

10.8

0.6

0.3

FY23

8.5

15.6

113.6

2.0

23.6

0.8

92.3

50.1

6.9

45.1

0.3

-1.5

7.7

6.1

7.0

0.4

0.2

FY24

10.5

20.5

127.0

2.0

19.0

0.4

74.4

38.2

6.2

28.7

0.3

-1.2

8.7

7.7

9.8

0.4

0.2

FY25E

17.9

33.0

142.0

2.7

15.1

0.3

43.7

23.7

5.5

19.7

0.3

-3.2

13.3

9.4

12.5

0.4

0.2

FY26E

20.8

38.5

159.8

3.0

14.4

0.4

37.6

20.3

4.9

17.5

0.4

-1.8

13.8

9.6

12.9

0.4

0.2

FY27E

20.4

46.4

177.0

3.0

14.7

0.4

38.4

16.8

4.4

14.2

0.4

0.8

12.1

10.1

13.3

0.4

0.2

3.3

0.8

2.6

0.5

1.8

0.4

6.0

1.1

4.8

1.2

4.1

1.4

4.1

1.5

4.5

2.0

(INR m)

FY27E

1,31,877

6,080

-7,982

1,29,975

-1,15,000

14,975

4,237

-1,10,763

45,000

-48,998

-4,920

-8,918

10,294

16,498

26,792

FY20

29,569

-7,743

746

-1,751

20,820

-1,210

19,611

2,101

2,122

3,013

-7,070

-10,621

-1,979

-228

-19,844

3,989

5,458

9,448

FY21

29,066

8,663

1,101

-1,831

36,999

-4,354

32,644

1,707

-7,678

-10,326

-15,082

-8,433

-1,643

661

-24,487

2,187

9,448

11,635

FY22

35,690

-4,375

2,593

-4,388

29,520

-22,941

6,580

3,166

5,852

-13,922

-844

3,892

-7,574

-3,287

5,846

-1,967

13,631

11,634

25,265

FY23

32,818

-11,336

2,833

-3,473

20,843

-42,363

-21,520

2,342

-30,074

-70,095

87,278

-10,758

-3,288

1,581

74,838

25,586

25,265

50,850

FY24

53,818

10,085

2,290

-3,857

62,336

-80,328

-17,991

1,894

-4,743

-83,177

-1,77,098

-23,082

-3,468

2,26,596

22,947

2,106

50,850

52,957

FY25E

82,190

3,400

-6,621

78,969

-1,30,000

-51,031

4,237

-1,25,763

55,000

-24,926

-4,428

25,646

-21,149

52,957

31,808

FY26E

96,223

5,440

-7,706

93,957

-1,25,000

-31,043

4,237

-1,20,763

45,000

-28,584

-4,920

11,496

-15,310

31,808

16,498

September 2024

104

Initiating Coverage | Sector: Power Utilities

Indian Energy Exchange

BSE Sensex

84,929

S&P CNX

25,939

CMP: INR239

TP: INR226 (-5%)

Neutral

Regulatory overhang mars an otherwise solid outlook

Stock info

Bloomberg

Equity Shares (m)

M.Cap.(INRb)/(USDb)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

12M Avg Val (INR M)

Free float (%)

IEX IN

892

206.3 / 2.5

233 / 121

14/55/44

2297

100.0

FY25E

5.1

4.3

3.7

4.1

7.6

12.7

(0.3)

35.3

34.6

50.0

56.2

18.2

46.7

0.9

FY26E

6.0

5.2

4.4

4.9

19.2

15.2

(0.4)

35.3

34.7

50.0

47.1

15.3

38.7

1.1



Financial Snapshot (INR b)

Y/E March

Sales

EBITDA

Adj. PAT

EPS (INR)

EPS Gr.%

BV/Sh. (INR)

Ratios

Net D:E

RoE (%)

RoCE (%)

Payout (%)

Valuation

P/E (x)

P/B (x)

EV/EBITDA (x)

Div. yield (%)

FY24

4.5

3.8

3.4

3.8

16.7

10.6

(0.2)

39.4

38.6

50.0

60.5

21.8

54.1

0.8



We initiate coverage on IEX with a Neutral rating and a TP of INR226. IEX is an

electricity exchange with an 84% market share in total exchange-traded volumes

in FY24. It has delivered a volume CAGR of 15% during FY13-24.

The launch of new products (e.g., long-dated contracts), rising FDRE projects and

growth in RE certificates will boost its volume growth outlook. The 11-month

contract segment represents a significant market opportunity, with ~40 BUs of

transactions happening in the bilateral market; and assuming 10% share of this

market in the initial year, it adds 4% to FY24 volumes, we estimate.

The Transmission System Plan, prepared by a committee set up by the Ministry

of Power, envisions installation of 51.5GW of BESS by 2030 to provide RTC

power to end consumers. Also, given the need to meet base power demand, the

industry has been pivoting toward FDRE and RTC tenders, with power exchanges

playing a crucial role in meeting the growing demand from discoms and ensuring

compliance with RPO targets. IEX could be a key beneficiary of this trend.

We estimate a CAGR of 17%/15% in IEX’s volumes/PAT during FY24-27,

considering falling power prices, favorable base effects and a strong market

share.

However, the potential implementation of market coupling is a key regulatory

overhang that could dampen IEX’s growth prospects given its dominant market

share. We initiate coverage on IEX with a Neutral rating and a TP of INR226. Our

TP implies an FY26E P/E of 46x vs. the current FY26E P/E of 47x. Our valuation

multiple of 40x is marginally below the historical mean +1 SD PE of 44x for the

stock and already takes into account robust growth prospects, leaving limited

upside potential.

Robust

olume trends in 1HFY25



Shareholding pattern (%)

As On

Jun-24 Mar-24 Jun-23

Promoter

0.0

DII

31.3

27.3

21.1

FII

12.0

11.2

17.6

Others

56.8

61.6

61.3

FII Includes depository receipts

Stock performance (one-year)



IEX reported 14% YoY volume growth in FY24, after a robust 29% CAGR

during FY20-22. We estimate volume growth of 13% YoY in FY25 and 14%

YoY in FY26. In 1QFY25, IEX reported a 21% YoY jump in overall volumes.

We believe that the following factors should support volume growth in the

medium term: 1) lower power prices due to softer coal prices on YoY basis;

2) the launch of new products like long-dated contracts spanning up to 11

months; and 3) the recent amendment to late payment surcharge rules,

which mandates offering surplus power in order to claim capacity charges.

IEX is currently awaiting approval from CERC to extend the term-ahead

market contract from 90 days to 11 months. The 11-month contract

segment represents a significant market opportunity, with ~40 BUs of

transactions happening in the bilateral market. Even if IEX secures only a

10% share of this market in the initial year, it adds 4% to FY24 volumes, we

estimate.

In response to the growing addition of RE capacity and feedback from RE

generators, IEX has also filed a petition with CERC to introduce a green

real-time market (RTM) product to address the variability in renewable

generation.

105

Launch of long-term contracts to add 4% to total volumes in near term



September 2024

Power Utilities

Medium- to long-term boost from FDRE and battery storage projects



Given the need to meet base power demand, the industry has been pivoting

toward FDRE and RTC tenders, with power exchanges playing a crucial role in

meeting the growing demand from discoms and ensuring compliance with RPO

targets. These contracts, which may include surplus generation capacity, offer

significant opportunities for exchanges to facilitate the sale of surplus power,

particularly as 5% of the annual commitment in FDRE can be purchased through

GDAM. IEX is well-positioned to support these advancements, providing a

robust platform for the trading of surplus capacity generated through these

contracts and helping discoms meet their RPO targets.

The Transmission System Plan, prepared by a committee set up by the Ministry

of Power, envisions installation of 51.5GW of BESS by 2030 to provide RTC

power to end consumers.

IEX has a 47.28% stake in Indian Gas Exchange (IGX), which offers short-term

products in the gas markets. IGX saw a 15% volume CAGR during FY13-24. We

believe the outlook is robust as domestic gas production from ONGC, Oil India,

and Reliance Industries is set to rise meaningfully YoY in FY25 and beyond. Start

of Indradhanush Gas Grid (phase I – 4QFY25) should also catalyze volume

growth from northeastern producers.

Moreover, as spot LNG prices have moderated from a higher base of

USD16/mmbtu in 3QFY24 to ~USD13/mmbtu in 2QFY25TD, we believe overall

gas consumption (and so volumes on IGX) in India should rise.

Accordingly, IEX’s stake in IGX provides long-term value optionality should IGX

go for an IPO in the future.

The uncertainty surrounding the implementation of market coupling has been a

major concern for IEX in the last two years. Considering its dominant market

position, IEX could suffer the most should market coupling be implemented.

The concept of a market-coupling operator, tasked with consolidating bids from

various exchanges to establish a uniform price, could potentially diminish IEX’s

liquidity advantage and result in higher competition, leading to a dip in fees.

Exchange volumes tend to fare poorly during the periods of high power prices;

therefore, elevated power prices remain a risk given the expected power deficit

situation in India in the coming years.

Potential market share loss by exchanges to bilateral transactions and increased

competitive intensity

The implementation of market coupling without a roadmap toward MBED will

be a backward step for innovation and progress in power markets and could

lead to loss of volumes/profitability for IEX, in our view.

IEX is projected to achieve a PAT CAGR of 15% during FY24-27 and EBITDA

margin of 86%, driven by a CAGR of 17% in volumes and declining power prices,

the introduction of new products such as long-dated contracts(LDC) up to 11

months, and a robust market share.

IGX provides medium- to long-term optionality



Regulatory overhang weighs on an otherwise positive growth outlook



Key risks



Solid market share, rising volumes underpin profitability



September 2024

106

Power Utilities

Valuation and view



We initiate coverage on IEX with a Neutral rating and a TP of INR226. Our

valuation multiple of 40x is marginally below the historical mean + 1 SD PE of

44x for the stock and already takes into account robust growth prospects,

leaving limited upside potential.

In FY24-27, we estimate a 17% CAGR in volumes and EBITDA margin of ~86%.

Given limited capex, low working capital requirements, and an established

market position, we expect IEX to sustain its ROE in the current range of 35-40%.

September 2024

107

Power Utilities

STORY IN CHARTS

Spot power prices on IEX

IEX spot prices - INR/kWh

5.9

5.2

4.4

3.3

3.9

3.0

2.8

IEX’s market share among exchanges

Market share of IEX of volumes traded on exchanges (%)

Revenue growth (INR b)

Transaction fees

Others

Volume growth (BU)

DAM

Others

2.0

0.3

1.7

2.3

0.2

2.1

2.5

0.2

2.3

2.6

0.2

2.4

3.2

0.2

3.0

4.3

0.2

4.0

0.2

3.8

4.5

0.4

4.0

5.1

0.2

4.9

6.0

0.2

5.8

7.1

0.2

6.8

100

PAT growth (INR b)

EBITDA

PAT

6.1

5.2

Day ahead volume as % of all India generation

Volumes on exchanges - BU

5.8

3.6

3.9

4.1

% of all-India generation

7.0

6.8

6.3

2.01.7 2.01.8

2.6

2.1

3.7

3.0 3.42.9

4.3

3.83.4

3.7

5.2

4.4

101

103

121

Short-term volume

Short Term Volumes (BU)

Share of Total Generation (%)

13.3

14.0

14.6

Exchange volume (%) in total short term volumes

Exchange Volumes (BU)

Share in ST volume(%)

10.6

9.9

10.6

12.5

12.0

12.9

101

103

121

157

185

216

Source: Company, MOFSL

September 2024

108

Power Utilities

Company overview

IEX is India's leading energy marketplace, providing a nationwide automated

platform for trading electricity, renewables and certificates. Since its inception

on in Jun’08, IEX has expanded into cross-border electricity trade, aiming to

integrate the South Asian power market. The exchange operates with cutting-

edge technology, supporting efficient price discovery and seamless power

procurement.



IEX's ecosystem includes over 7,900 participants across 28 states and 8 union

territories, such as 65+ discoms, 800+ generators, 2,100+ RE generators and

obligated entities, and 4,900+ commercial and industrial consumers from

diverse sectors. The exchange is regulated by CERC and is listed on NSE and BSE

since Oct’17.



IEX offers multiple trading options, including:



Electricity Market: Day Ahead Market, Term Ahead Market, Real Time Market,

Cross Border Trad



Green Market: Green Term Ahead Market, Green Day-Ahead Market



Certificate Market: Renewable Energy Certificates, Energy Saving Certificates



In 2020, IEX incorporated the Indian Gas Exchange (IGX), which has been

profitable for more than three years. The government aims to increase gas

consumption from 6% to 15% of the energy mix, supported by growing

infrastructure such as expanding LNG terminal capacity from 45mt to 75mt and

new pipeline networks. With these developments, along with lower gas prices,

IGX is expected to demonstrate significant growth, potentially reaching the scale

of IEX in the next five years.



Exhibit 98:

IEX Volume(BU) across markets

DAM

200

150

100

FY19

FY20

FY21

FY22

FY23

FY24

FY25E

FY26E

FY27E

TAM + RTM

G-DAM

G-TAM

HP-DAM

DAM TRAS

RTM TRAS

RECs

ESCert

Source: Company, MOFSL

Launch of long-term contracts is a significant near-term catalyst



IEX is currently awaiting approval from CERC to extend the term-ahead market

contract from 90 days to 11 months. The hearing has concluded and an order is

reserved for the 11-month contract. The 11-month contract segment represents

a significant market opportunity, with ~40 BUs of transactions happening in the

bilateral market. Once approved, this contract is expected to drive considerable

volume on IEX's platform.

In response to the growing addition of RE capacity and feedback from RE

generators, IEX has also filed a petition with CERC to introduce a green RTM

product to address the variability in renewable generation.

September 2024

109

Power Utilities



Market demand has prompted the development of contracts linked to

international benchmarks. To facilitate this, IEX has entered into a licensing

agreement with S&P Global Platts, allowing the use of benchmarks such as WIM,

JKM, and Brent. Upon approval from PNGRB, these assessment contracts will be

listed on IGX, offering buyers and sellers the option to select index on which

they want to buy/ sell their produce for a 3-month to a 12-month contract.

IEX has remained leading exchange over the years



India's power market operates through three major exchanges: IEX, PXIL and

HPX, all regulated by CERC. Among these, IEX stands out as the only listed entity

and dominates the market with an

84% share in FY24

based on volumes.

In terms of performance, IEX achieved a new milestone by trading 110 BUs in

FY24, surpassing the 100 BUs mark for the first time. This included 101.5 BUs of

electricity. Both electricity and REC segments have seen strong growth, with

1QFY25 seeing a 19% increase in electricity trading and a 50% rise in REC

trading. The latter has been driven by a significant price correction, with REC

floor prices dropping to INR128 from INR1,000 in 2023, attracting more C&I

consumers and utilities to meet their RE purchase obligations. IEX's broad

participant base continues to support its growth and market leadership.

Exhibit 99:

IEX’s market share among exchanges

Market share of IEX of volumes traded on exchanges (%)

Source: Company, MOFSL



IEX is particularly optimistic about the growth potential in the Green Market and

RTM segments. DAM is also showing positive consolidation, especially as DAC

volumes. REC trading has seen substantial improvement, with stable and

favorable pricing.

The optimization potential in the market, which had been constrained by high

prices in the past few years, is now re-emerging as a growth area. The decline in

coal prices and the increased availability of affordable solar power during the

day have reignited this segment's growth prospects.

Looking ahead, India's GDP is projected to grow 7-8% over the next several

years, with power demand expected to match this growth rate through 2030.

This economic expansion presents significant opportunities for IEX and other

exchanges to grow their business. The government's focus on green hydrogen,

green energy banking solutions, and innovations like pump storage and battery

storage, is expected to drive new product developments and market

innovations.

September 2024

110

Power Utilities

Exhibit 100:

IEX total volume

IEX Total Volume (BU)

179

153

130

102

110

Exhibit 101:

Cumulative volume in FY24

G-TAM G-DAM

TAM

13%

DAM

49%

110.1

RTM

27%

FY19 FY20 FY21 FY22 FY23 FY24 FY25E FY26E FY27E

ESCerts

WHRS/GFG, 2%

Source: Company, MOFSL Source: Company, MOFSL

Market coupling remains a material risk



CERC released a discussion paper in Aug'23 regarding market coupling, inviting

feedback from sector participants. Over 75% of respondents indicated that

market coupling would not add value to the market and emphasized the need

for increased liquidity instead. On 6th Feb’24, CERC issued an order, revealing

that a three-month simulation of market coupling in the RTM and DAM across

three exchanges showed no significant benefits.

Given that one exchange dominates with a 99% market share in the RTM and

DAM segment, the benefits of market coupling are further diminished.

However, CERC suggested exploring the potential of coupling the RTM market

with the SCED to enhance liquidity and optimization. The National Load

Despatch Centre (NLDC) has been directed to develop the necessary software

for this coupling and conduct a four-month simulation to evaluate its feasibility.

As of now, the software development process is ongoing, a complex task that

could take considerable time. Following the simulation, CERC will assess

whether to proceed with coupling based on the results. The complexity of

financial settlements between these two markets is significant.

Furthermore, the GoI's amendment to the LPS Rule mandates that all generating

stations offer un-requisitioned power on the exchange platform to be eligible

for fixed charges. This has already led to a shift of optimization from the SCED

market to the RTM and DAM markets, reducing the potential benefits of further

coupling.

Considering these factors, the case for coupling the RTM and SCED markets

appears weak. However, a final decision will depend on the outcomes of the

simulations and further deliberations by CERC and hence we think it is a low

probability event but a material risk to the business case.

September 2024

111

Power Utilities

Medium- to long-term boost from FDRE and battery storage projects



The Ministry of Power has set an ambitious goal of adding 50 GW of RE capacity

annually, aiming for a total of 500 GW by 2030. To support the integration of

this RE capacity with the grid, the Ministry has introduced a viability gap funding

(VGF) mechanism to develop BESS across the country, starting with a 4,000

MWh capacity.

The Transmission System Plan, prepared by a committee set up by the Ministry

of Power, envisions the installation of 51.5 GW of BESS by 2030 to provide RTC

power to end consumers.

Power exchanges are considered a key platform for the charging and discharging

of BESS, particularly during peak hours in the DAM and ancillary services.

Toward the end of FY24, BESS started to gain traction due to a significant

reduction in discovered rates, from ~11/kWh to ~3.66/kWh for two cycle

operations per day. This reduction is expected to continue as BESS

manufacturing overcapacity reduces costs, making BESS more viable and

increasing its participation in power markets during peak hours.

Furthermore, FDRE and RTC tenders are gaining traction, with power exchanges

playing a crucial role in meeting the growing demand from discoms and

ensuring compliance with RPO targets. These contracts, which may include

surplus generation capacity, offer significant opportunities for exchanges to

facilitate the sale of surplus power, particularly as 5% of the annual commitment

in FDRE can be purchased through GDAM. IEX is well-positioned to support

these advancements, providing a robust platform for the trading of surplus

capacity generated through these contracts and helping discoms meet their RPO

targets.

Exhibit 103:

Stable prices on IEX despite high demand

Power Consumption (BU)

DAM MCP (INR/unit)

7.8

820

5.73

101

4.93

5.2

910

400

407

4.93

5.3

452

RTM MCP (INR/unit)

Exhibit 102:

Technology cost (INR m)

Opex

Capex

520

320

FY20

350

250

FY21

100

470

FY22

650

FY23

FY24

1QFY23

1QFY24

1QFY25

Source: Company, MOFSL

RECs emerging as significant growth drivers



In 1QFY25, REC segments at IEX exhibited robust growth, with REC trading

surging by 50%. This notable increase in REC trading is largely attributed to a

significant correction in REC floor prices, which dropped from INR1,000/unit in

2023 to INR128/unit. This price adjustment has successfully attracted a greater

number of commercial and industrial consumers, as well as utilities, keen to

meet their RPOs. IEX's extensive participant base continues to bolster its market

leadership and sustained growth. Overall, RECs accounted for 7% of IEX’s total

volumes in FY24.

September 2024

112

Power Utilities



A recent regulatory change now classifies large hydro projects as RE, whereas

previously only small hydro projects were considered as such. This adjustment

has led to a substantial increase in REC issuance, particularly from states like

Uttarakhand and Himachal Pradesh, resulting in inventory exceeding 3.5m

certificates. The surge in supply, coupled with the reduced price, has sparked

interest from utilities and consumers, who were previously hesitant to meet

their RPOs at higher price points. The positive momentum seen in 1Q is

expected to persist, with IEX anticipating strong performance in FY25.

Additionally, the Ministry of New and Renewable Energy (MNRE) and the

Bureau of Energy Efficiency (BEE) are implementing stricter measures to enforce

RPO compliance under the Energy Conservation Act, including potential

penalties for non-compliance. This heightened regulatory oversight is expected

to significantly enhance the compliance market, potentially doubling the

demand from 7m to 14m RECs in the near future.

New products, rising power consumption support positive outlook



The growth drivers for IEX are anchored in several key areas:

Increase in power consumption:

The anticipated high GDP growth is expected

to drive a surge in power demand. Additionally, the ongoing electrification of

the economy, encompassing EVs, rooftop solar, electric cooking, railway

traction, and data centers, will further bolster electricity consumption. These

factors, coupled with CEA's projections on electricity demand, position IEX to

capitalize on the growing power requirements.

New products and regulatory developments:

IEX is poised to benefit from the

introduction of new products and regulatory advancements, including TAM for

durations up to 11 months, Green RTM and the implementation of late payment

surcharge (LPSC) rules. The continued relevance of RECs further underscores the

exchange's role in the evolving energy landscape.

Redesigning the electricity market:

The ongoing re-design of the electricity

market presents significant opportunities for IEX.

Energy transition:

The transition toward RE is reshaping the energy mix and

market dynamics. IEX is well-positioned to support this transition by integrating

new market models that align with the changing energy landscape.

Diversity in demand/supply patterns:

The inherent diversity in demand and

supply patterns, influenced by diurnal, seasonal, and geographical variations,

provides IEX with opportunities to offer tailored solutions that cater to these

fluctuations, thereby enhancing market efficiency and stability.

Ample supply:

The adequate availability of power at reasonable prices, coupled

with the addition of new capacity in both conventional and RE sectors, ensures

steady supply. This creates a favorable environment for IEX to facilitate robust

trading activities, supporting the exchange's growth and market leadership.

Other opportunities for growth:

Load shifting to solar hours, capacity addition

to increase market activity on the exchange and introduction of electricity

derivatives.

These growth levers underscore IEX's strategic positioning to thrive in an

increasingly dynamic and evolving energy market.

September 2024

113

Power Utilities

Exhibit 104:

Rising demand acting as a growth driver

All India demand (BU)

Traded volume at PXs (electricity)

121

101 103

Source: Company, MOFSL

Exhibit 105:

Energy transition

Maket Models to

support energy

transition

Contract for

difference (CFD)

Virtual PPA &

merchant RE

Firm dispatchable RE,

Round the clock RE

(FDRE & RTC)

Battery energy

storage systems

(BESS)

Source: Company, MOFSL

Cross-border trade can rise 7x over next decade



South Asian countries have engaged in cross border electricity trade (CBET) for

over a decade, predominantly through bilateral agreements. IEX initiated CBET

on its platform in Apr'21, initially limiting participation to DAM. In FY24, CEA

amended the procedures for CBET, extending it to include RTM operated by

power exchanges. This regulatory change has contributed to a significant

increase in cross-border trading volumes on the exchange. In FY24, IEX

facilitated trades of 4.0 BU in cross-border power, marking a 52% increase over

the previous fiscal year.

A report on BIMSTEC Energy Outlook 2035 projects that the potential for CBET

in the region could grow up to 7x, from 16 BU in 2020 to 127 BU by 2035. This

anticipated expansion is expected to further elevate CBET volumes on

exchanges.

Currently, India trades ~18 BUs (~4,000 MW) with its neighboring countries

through medium- and long-term bilateral contracts. IEX presently facilitates

electricity trade with Nepal and Bhutan, with Bangladesh expected to join soon.

Bangladesh's participation in CBET with India is anticipated to significantly

enhance the performance of its domestic power sector. As more of India's

neighboring countries engage in CBET, the South Asian power market will

benefit from increased cross-border trade, leveraging demand and generation

complementarities. This regional cooperation will optimize electricity costs,

accelerate access to power for consumers across participating countries, and aid

September 2024

114

Power Utilities



in the integration of RE. Moreover, this collaborative pricing mechanism will

provide a buffer against volatile fluctuations in the global market

Through its diverse market offerings, IEX anticipates greater participation from

these countries across various market segments.

IGX provides value optionality in the future



In line with the GoI's goal to increase the share of natural gas in India's energy

mix to 15% by 2030, IEX established the Indian Gas Exchange (IGX) in Jun'20. IGX

began operations as a gas trading platform in Jun'20, and has been functioning

as a gas exchange since Dec'20.

IGX is India's first national gas exchange for physical delivery and has traded a

total of 100m mmbtu over its first three years, capturing ~10% of the country's

natural gas spot market. IGX currently has 44 members and over 190 clients.

Key Positives for IGX in FY24:



DGH Empanelment now allows domestic producers to auction their gas

through IGX.



Fertilizer manufacturers are now allowed to purchase domestic gas via IGX

on a pilot basis.



IGX has received approval to introduce small-scale LNG contracts for

trading.



In FY23, IGX launched the Gas Index of India (GIXI), marking the first

nationwide price index to serve as a benchmark for natural gas prices in

India. In FY24, IGX signed an MoU with GSPC to create a Hydrogen Price

Index in GIFT City and partnered with S&P Global Platts to introduce long

duration contracts (LDC) linked to indices such as WIM, JKM, and Brent.

Currently, IEX currently holds 47.3% in IGX. IOCL holds another 4.9% stake in

IGX.

IEXs' FY24 consolidated PAT included share in profit from IGX (associate

company) amounting to INR109m. IGXs' PAT for FY23/FY24 stood at

INR280/230m.

Exhibit 106:

IGX Delivery volume & price

Volume (mmscmd)

Price (USD/mmbtu)

13.6 13.1

13.1

12.8 13.3

12.2

12.1

11.6

11.4 10.7

10.7

10.5 10.6

9.6

9.0 10.2

Source: Company, MOFSL

September 2024

115

Power Utilities

Exhibit 107:

Total Trade Volume (in mmscmd)

5.3

1.3

1.5

6.7

4.6

1.2

2.3

2.4

3.3

Source: Company, MOFSL

IGX key business segments



IGX operates with six gas hubs, each featuring multiple delivery points. It offers

six types of contracts: day-ahead, daily, weekly, weekday, fortnightly, and

monthly. Additionally, there are 12 consecutive monthly contracts available for

trading on any given trade date. The mechanism for price discovery is outlined

below:

For ex-hub contracts, the buyer handles delivery, whereas for delivery contracts,

the exchange is responsible for facilitating delivery. The contracts are in INR and

the minimum purchase amount is 50mmbtu/day.

India’s natural gas consumption will continue to rise over the next two

decades.

During FY24, the country's natural gas consumption was ~185mmscmd and has

already crossed 200mmscmd. To enhance the gas infrastructure, the current

~23,300km of gas pipelines is set to be expanded to ~35,000km over the next

two years.

India's LNG terminal capacity has reached 47.5mmtpa with the commissioning

of the Dhamra LNG Terminal. With additional projects in the pipeline, this

capacity is expected to expand to over 70mmtpa.

The development of robust infrastructure, combined with the increase in gas

demand from KG D6, KG 98/2, NRL, etc. will facilitate the growth of short-term

gas trading in India.

Exhibit 108:

IGX yearly volume trend (Mn mmbtu)

50.9

40.8

12.2

FY22

FY23

FY24

Source: Company, MOFSL

September 2024

116

Power Utilities

Key drivers of future LNG demand in India



Sales purchase agreements (SPAs):

Since 2023, Indian buyers have announced

11.65mmtpa of SPAs. Recent agreements have reduced the gap between

contractual supply and demand, driven by increasing demand and peaking

domestic gas production, which highlights the need for more long-term deals to

minimize spot market exposure.

Policy focus:

Current policies emphasize fuel switching through the promotion

of natural gas.

Affordability efforts:



Unified tariff:

Its implementation has significantly reduced pipeline

transportation costs, especially for consumers located far from source

points.



Pricing linkage:

Domestic natural gas pricing is now linked to crude oil

prices, leading to a substantial decrease in prices for PNG (households) and

CNG (transport).



HPHT gas mandates:

Measures are in place to support price-sensitive

downstream sectors.

Sector prioritization:

The government prioritizes bids from the CGD sector for

transport and residential customers, followed by fertilizer plants, LPG

producers, and power plants.

Trader margin caps:

There are caps on traders' margins to prevent excessive

charges to downstream customers.

Production trends:

Domestic gas production is on the rise, with further growth

expected as more fields come online. Increased availability of domestic gas,

including HPHT, has contributed to reduced imports.

Exhibit 109:

All India Natural Gas Consumption (in mmscmd)

Net Domestic Production

144

141

143

153

162

LNG Imports

167

176

Total Consumption

166

179

165

187

Source: Company, MOFSL

September 2024

117

Power Utilities

Risks



Market coupling and market share impact:

The implementation of market

coupling presents a critical risk for IEX. However, CERC has yet to decide on its

implementation. This uncertainty introduces regulatory risk, as any design

changes or delays in the adoption of market coupling could affect IEX’s

competitive positioning and market dynamics.

Shift from spot market to long-term instruments:

High power prices have

resulted in a shift in power volumes from the spot market to longer-duration

instruments. This shift could affect IEX’s revenue streams, as a decline in spot

market trading volumes may affect overall trading activity and profitability. IEX

must adapt to these changes by evolving its product offerings and market

strategies to maintain its competitive edge and revenue growth.

Rising competition:

Increasing competition in the electricity market poses a risk

to IEX. The presence of new and existing market players intensifies the

competitive landscape, potentially affecting IEX’s market share and profitability.

Regulatory risks:

IEX is subject to various regulations under the Electricity Act,

2003, including the Power Market Regulations, Inter-State Open Access

Regulations, and scheduling procedures issued by POSOCO. The regulatory

environment is dynamic, and any deviations from established regulations could

adversely affect IEX's operations and market standing.

Technological risks:

The introduction of new market products, such as the RTM

and High Price DAM, with stringent timelines, increases IEX’s dependency on

advanced technologies and systems. Risks related to system failures,

cybersecurity threats, and operational disruptions could affect trading

processes, disrupt business operations, and damage IEX’s reputation.

Revenue impact from market volatility:

IEX’s revenues are closely tied to its

market share and trading volumes. Market volatility and fluctuating trading

volumes can adversely affect the company’s financial performance. Failure to

align its products and services with evolving market demands may further

impact revenue and profitability.

Valuation

Our target price of INR 226 for IEX is based on:



We value the business at Dec’26E EPS of 5.6 with a PE multiple of 40x. This

compares with mean and mean+1 SD of 33x and 44x, respectively.



We have not assumed any value for IGX stake in our valuation.



Our valuation multiple of 40x is marginally below the historical mean + 1 SD PE of 44x

for the stock and already takes into account robust growth prospects, leaving limited

upside potential.

Exhibit 110:

Valuation Table

Dec-26 EPS

Valuation multiple

Target Price

CMP

Upside / (Downside)

INR

(x)

INR

5.6

226

239

-5%

Source: MOFSL

September 2024

118

Power Utilities

SWOT analysis



Leading power exchange

in India with near 90%

market share in exchange

traded volumes.

Strong technological

expertise and product

innovation (RTM, LDC)

have been key to

maintaining market

share.



While IEX is the leading

power exchange in

India, its operations

are confined to the

domestic market for

now.



Play on rising share of

short-term market and

increasing exchange

penetration in India’s

overall electricity

market.

Stake in Indian Gas

Exchange provides

opportunity to

leverage rising gas

trading in India.



Market coupling or other

adverse regulatory

decisions remain key

threat.

Economic downturns,

currency fluctuations,

and macroeconomic

factors can impact

electricity demand and

energy prices.



September 2024

119

Power Utilities

Bull and Bear cases

Bull case

In our Bull case scenario, we factor in a volume growth CAGR of ~23% over the

FY25-27 period (vs. a ~17% CAGR in the Base case over FY25-27 period.



We also raise the valuation multiple to 32x PE vs 40x in the base case leading to

a bull case valuation of INR308/sh.



Bear case



In our Bear case scenario, we factor in a volume growth CAGR of ~12% over the

FY25-27 period (vs. a ~17% CAGR in the Base case over FY25-27 period.



We also assume that market-coupling concerns may arise again leading to a

sharp valuation de-rating. Based on the above assumptions, the company’s

valuation on a P/E multiple basis would be INR155/sh.

Exhibit 111:

Scenario analysis – Bull case

INR m

Net revenues

EBITDA

PAT

Target price (INR)

Upside (%)

FY25E

5,326

4,572

3,850

308

FY26E

6,598

5,752

4,810

FY27E

8,190

7,232

6,013

Exhibit 112:

Scenario analysis – Bear case

INR m

Net revenues

EBITDA

PAT

Target price (INR)

Downside (%)

FY25E

4,842

4,088

3,488

155

FY26E

5,445

4,606

3,946

FY27E

6,124

5,183

4,456

Source: MOFSL

September 2024

120

Power Utilities

ESG initiatives

Environment



IEX became India’s first carbon neutral Power Exchange in FY23, using market-

based tradable instruments. The aim is to offset its carbon emissions for FY22.

IEX has ISO Certifications for quality management, information security

management, and environmental management since Aug’16.

Social



In association with the Friends of Tribal Society, IEX has set up 100 Ekal

Viyalayas in Rourkela, Odisha, with an objective of providing education to tribal

children.

IEX collaborated with the Sabhyata Foundation for promoting and protecting

India’s culture, art, and heritage. It supported the Foundation’s initiatives of

restoration, preservation, and promotion of national culture and heritage at the

Red Fort Monument, which is designated as a UNESCO World Heritage site.

The company incurred INR56.6m of expenses in FY23 (compared to INR45.6m in

FY22) towards CSR as mandated by Section 135 of the Companies Act, 2013,

thus meeting its obligation.

Since FY17, IEX has partnered with the Akruti School for the Mentally

Challenged in Bangalore to deliver daily living skills training to over 50 children

and adolescents, and aim to enhance their self-sufficiency and capacity

development.

IEX, in collaboration with the Sampark Foundation, implemented the Sampark

Smart Class Program, which will enhance English and Numerics skills of children

in 170 government schools in Raigarh, Chhattisgarh.

Governance



The composition of the Board of Directors meets the requirement of SEBI

(Listing obligations and disclosure requirements) Regulations, 2015.

The composition of Risk management committee (applicable to the top 1,000

listed entities) is as per the SEBI (Listing obligations and disclosure

requirements) Regulations, 2015.

September 2024

121

Power Utilities

Management overview

Mr. Satyanarayan Goel, Chairman and Managing Director



Mr. Goel is the CMD of the company, having held the position of MD & CEO

during CY14-19. Under his tutelage, the company has expanded its portfolio of

offerings, and undertaken several digital transformation initiatives, leading to

significant growth in the business.

With over 40 years of experience, he has previously held positions in PTC and

NTPC. He holds a Bachelor’s degree in Electrical Engineering from NIT Rourkela

and an MBA from the Faculty of Management Studies, New Delhi.

Mr. Vineet Harlalka, CFO & Company Secretary



Mr. Harlalka was appointed as the CFO in CY14 and he is also the Company

Secretary and Compliance Officer of IEX. With more than 20 years of experience,

he has previously worked with New Holland Fiat (India) Pvt. Ltd.

He holds a Bachelor’s degree of Commerce from the University of Delhi and has

been inducted as an Associate of the ICAI and the Institute of Company

Secretaries of India.

Mr. Rohit Bajaj, ED – Business Development, Strategy and Regulatory

Affairs



Mr. Bajaj was appointed as the ED in CY14; he has 27 years of experience in the

energy domain, especially in the power, oil, and gas sectors. Prior to joining IEX,

he was the Head of business for National Energy Trading and Services.

He has a Bachelor’s degree in Mechanical Engineering from the Regional

Engineering College, Rourkela, Sambalpur University and attended a Post

Graduate Diploma program in Executive Management from the Management

Development Institute, Gurgaon.

Mr. Amit Kumar, Head – Market Operations & NPI



Mr. Kumar has 19 years of experience and has worked in roles across

operations, product management, program management, and software

development functions. Previously, he was a member of the core leadership

team at Limeroad. He has also worked at Amazon, Microsoft, and Infosys.

Amit Kumar holds a Bachelor of Technology degree in Chemical Engineering

from the Indian Institute of Technology (BHU), Varanasi. He completed his MBA

from the Indian School of Business, Hyderabad.

September 2024

122

Power Utilities

Financials and valuations

Standalone Income Statement

Y/E March

Net Sales

Change (%)

Transaction fees

Volumes (excl. REC) - BU

EBITDA

EBITDAM (%)

Depn. & Amortization

EBIT

Net Interest

Other income

PBT

Tax

Rate (%)

Reported PAT

Adjusted PAT

Change (%)

Standalone Balance Sheet

Y/E March

Share Capital

Reserves

Net Worth

Deferred Tax Liability

Capital Employed

Gross Block

Less: Accum. Deprn.

Net Fixed Assets

Capital WIP

Investments

Curr. Assets

Account Receivables

Current Investments

Cash and Cash Equivalents

Cash balance

Bank balance

Others

Curr. Liability & Prov.

Account Payables

Provisions & Others

Net Curr. Assets

Appl. of Funds

FY22

4,255

34.2

4,038

100

3,656

85.9

163

3,493

523

3,996

971

24.3

3,025

41.7

FY23

4,009

-5.8

3,807

3,365

83.9

186

3,179

732

3,887

960

24.7

2,927

-3.2

FY24

4,492

12.0

4,042

110

3,785

84.3

204

3,581

1,016

4,568

1,154

25.3

3,414

16.7

FY25E

5,093

13.4

4,886

130

4,339

85.2

193

4,146

797

4,914

1,238

25.2

3,676

7.6

FY26E

6,028

18.4

5,814

153

5,186

86.0

197

4,989

899

5,860

1,477

25.2

4,383

19.2

(INR m)

FY27E

7,057

17.1

6,838

179

6,108

86.6

201

5,907

1,020

6,899

1,738

25.2

5,160

17.7

(INR m)

FY27E

891

14,168

15,059

307

15,366

2,436

1,638

775

4,481

17,779

863

8,617

7,658

7,283

374

642

7,699

5,627

2,073

10,080

15,367

FY22

898

6,122

7,020

223

7,242

1,755

656

1,099

1,046

14,754

874

11,420

2,326

2,242

133

9,705

6,352

3,354

5,048

7,242

FY23

891

6,954

7,845

220

8,065

1,944

842

1,102

5,197

8,051

6,847

645

569

489

6,323

4,024

2,299

1,728

8,065

FY24

891

8,591

9,482

307

9,789

2,076

1,046

1,007

4,481

11,974

863

8,617

1,852

1,478

374

642

7,702

5,627

2,076

4,271

9,789

FY25E

891

10,429

11,320

307

11,627

2,176

1,240

913

4,481

13,900

863

8,617

3,778

3,404

374

642

7,697

5,627

2,071

6,203

11,627

FY26E

891

12,620

13,511

307

13,818

2,296

1,437

837

4,481

16,169

863

8,617

6,047

5,673

374

642

7,698

5,627

2,072

8,471

13,819

September 2024

123

Power Utilities

Financials and valuations

Ratios

Y/E March

Basic (INR)

EPS

Growth (%)

Cash EPS

BV/Share

DPS

Payout (%)

Dividend yield (%)

Valuation (x)

P/E

Cash P/E

P/BV

EV/EBITDA

Dividend Yield (%)

Return Ratios (%)

RoE

RoCE (post-tax)

RoIC (post-tax)

Working Capital Ratios

Fixed Asset Turnover (x)

Asset Turnover (x)

Debtor (Days)

Payable (Days)

Standalone Cash flow statement

Y/E March

EBITDA

Others

Direct taxes (net)

CF from Op. Activity

Capex

FCFF

Interest income

Others

CF from Inv. Activity

Share capital

Borrowings

Finance cost

Dividend

Others

CF from Fin. Activity

(Inc)/Dec in Cash

Opening balance

Closing balance

FY22

3.4

-52.9

3.6

7.8

2.0

59.4

0.9

68.8

65.3

29.7

56.3

0.9

49.1

47.5

71.7

3.9

0.6

545

FY23

3.3

-2.5

3.5

8.8

1.0

30.4

0.8

70.6

66.4

26.3

61.2

0.4

39.4

38.6

79.7

3.6

0.5

366

FY24

3.8

16.7

4.1

10.6

1.9

50.0

1.2

60.5

57.1

21.8

54.1

0.8

39.4

38.6

95.4

4.5

0.5

457

FY25E

4.1

7.6

4.3

12.7

2.1

50.0

0.9

56.2

53.4

18.2

46.7

0.9

35.3

34.6

91.7

5.6

0.4

403

FY26E

4.9

19.2

5.1

15.2

2.5

50.0

1.1

47.1

45.1

15.3

38.7

1.1

35.3

34.7

113.1

7.2

0.4

341

FY27E

5.8

17.7

6.0

16.9

4.1

70.0

1.7

40.0

38.5

13.7

32.6

1.7

36.1

35.6

136.8

9.1

0.5

291

(INR m)

FY27E

6,108

-1,738

4,370

-140

4,230

225

378

463

-28

-3,612

418

-3,223

1,610

5,673

7,283

FY22

3,656

5,210

-1,025

7,877

-108

7,769

103

-4,725

-4,730

-7

-1,345

-6

-1,358

1,789

452

2,242

FY23

3,365

-2,690

-930

-225

-87

-312

709

700

-2

-897

-1,249

-2,148

-1,673

2,242

569

FY24

3,785

263

-1,061

3,001

-132

2,869

228

-357

-262

-2

-1,780

-49

-1,831

909

569

1,478

FY25E

4,339

-1,238

3,101

-100

3,001

225

566

691

-28

-1,838

-1,866

1,926

1,478

3,404

FY26E

5,186

-1,477

3,709

-120

3,589

225

681

786

-28

-2,191

-6

-2,226

2,269

3,404

5,673

Investment in securities market are subject to market risks. Read all the related documents carefully before investing

September 2024

124

REPORT GALLERY

RECENT STRATEGY/THEMATIC REPORTS

Power Utilities

September 2024

125

Power Utilities

NOTES

September 2024

126

Power Utilities

Explanation of Investment Rating

Investment Rating

Expected return (over 12-month)

BUY

>=15%

SELL

< - 10%

NEUTRAL

< - 10 % to 15%

UNDER REVIEW

Rating may undergo a change

NOT RATED

We have forward looking estimates for the stock but we refrain from assigning recommendation

*In case the recommendation given by the Research Analyst is inconsistent with the investment rating legend for a continuous period of 30 days, the Research Analyst shall be within following 30 days take

appropriate measures to make the recommendation consistent with the investment rating legend.

Disclosures

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acted as a manager or co-manager of public offering of securities of the subject company in past 12 months

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Power Utilities

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