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As the coal shortage concerns loom, brokerage firm Jefferies said that the current shortage should be temporary, with risk being domestic production not ramping up like before as seasonally, November-December sees Coal India production ramp up and demand trends normalise.

"There have been 2 instances in the last 7 years, when in July-Sept coal stocks have gone below 10 days; in July 2014 stocks touched a low of 1 day. In both instances by Nov-Dec the situation began to stabilise," the brokerage said in a note. Traditionally, 1H (first half) power demand is 5-7% higher than 2H with August and October being relatively higher demand months. On the other hand, Coal India supplies are higher in 2H vs 1H, as production is lower in monsoons.

As coal stocks normalise, NTPC should not see material under-recoveries by year-end, Jefferies' note stated. The company’s renewable energy (RE) scaleup to 60 GW by 2030, as per the brokerage, is a key re-rating trigger. 

Meanwhile, Jefferies said that Power Grid continues on its higher dividend payout track until capex recovers. Further, incremental project monetisation should add to this.

Taking stock of the coal stocks, the brokerage remains positive on NTPC and Power Grid with company-specific triggers of RE and monetisation and has raised price targets by 5-7% to factor rollover to September 2023 from April 2023. It has a Buy rating on NTPC with a target price of 160 (earlier 150). Its buy stance on Power Grid comes with a revised price target of 225.

However, even though Tata Power benefits from a rise in global coal prices, Jefferies remains concerned on weak returns on the power asset basket and long-term sustainability of higher coal prices.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

 

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