12 Nov 2008, 1543 hrs IST, Saikat Das, ECONOMICTIMES.COM
MUMBAI: With the recession buzz leaving investors browbeaten, power sector is seen as good bet for long term investors with huge future potential.
In the 11th Five Year Plan, a capacity addition of 78,530 MW has been chalked out by the ministry of finance. In the 12th Plan, the requirement of capacity addition works out to 82,000 MW. Nuclear power is also expected to give a fillip to the capacity additions.
"Irrespective of liquidity crunch, the demand of power will not be squeezed in a growing economy like India. For long term perspective, one can invest in this sector expecting returns more than fixed deposits with a timeline of 3-5 years," commented Manish Sonthalia, vice president – equity research, Motilal Oswal.
Interestingly, a McKinsey report estimates that India's electricity demand may triple to 3,35,00 MW by 2017.
The sector will prove to be a good support to an investor in the long run, even though the BSE Power Index has seen a fall of 74 per cent from Jan 8 when the index touched an all-time high of 4929.34 to a 52-week low of 1274.88 on Oct 27.
In comparison, the BSE Sensex lost 62.60 per cent during the period from Jan 10 when it touched a life high of 20582.08 to a 52-week low of 7697.39 on Oct 27.
However since the low, the power index has risen 50.4 per cent since compared to a recovery of 36.87 per cent on the Sensex.
Among the power generation companies, NTPC and Tata Power are the best bets for investment, according to analysts. Tata Power's ambitious expansion plans along with its foray into retail power distribution and NTPC's foray into newer projects have made analyst bullish on them. Further, falling coal and oil prices will add to profit margins.
Armed with their strong balance sheet, government support and proven project execution skills, NTPC is expected to add around 65 per cent of the total generation capacity by the central sector, which is 25,115 MW, according a research report by SMC Global.
Tata Power has targeted to increase its power generation capacity from present 2300 MW to 10,000 MW by 2012.
Motilal's Sonthalia sees an upside of 50 per cent within two years for Tata Power stock and has set a target price between Rs 180-190 for NTPC.
In power equipment segment, BHEL and Larsen & Toubro, which trade at attractive levels of Rs 1,386 (PE 25.74) and Rs 870.90 (PE 22.39) respectively, also appear to be good buys for the long term.
In transmission, Power Grid is available around Rs 75 (share listed at Rs 80 two years back). Investors would do well to buy the stock owing to the company's monopolistic nature wherein it enjoys the right to lay grids nation wide.
Analysts also make a case for KEC International. Jaisheel Garg, senior research analyst, SMC Global, said, "Unlike in the past when only 10% of KEC's orders used to come from the domestic market, it now derives about 50% of its revenue. It expects a 70:30 revenue mix (international:domestic), which is also reflected in its current order book."
Alex Mathew , head – research, Geojit Financial, said, "In order to achieve the projected 9%-10% GDP growth, the government has no alternative but to focus on power sector. This augurs well for long term investment in power sector. Investors should start buying at every decline in the bear market."
In the 11th Five Year Plan, a capacity addition of 78,530 MW has been chalked out by the ministry of finance. In the 12th Plan, the requirement of capacity addition works out to 82,000 MW. Nuclear power is also expected to give a fillip to the capacity additions.
"Irrespective of liquidity crunch, the demand of power will not be squeezed in a growing economy like India. For long term perspective, one can invest in this sector expecting returns more than fixed deposits with a timeline of 3-5 years," commented Manish Sonthalia, vice president – equity research, Motilal Oswal.
Interestingly, a McKinsey report estimates that India's electricity demand may triple to 3,35,00 MW by 2017.
The sector will prove to be a good support to an investor in the long run, even though the BSE Power Index has seen a fall of 74 per cent from Jan 8 when the index touched an all-time high of 4929.34 to a 52-week low of 1274.88 on Oct 27.
In comparison, the BSE Sensex lost 62.60 per cent during the period from Jan 10 when it touched a life high of 20582.08 to a 52-week low of 7697.39 on Oct 27.
However since the low, the power index has risen 50.4 per cent since compared to a recovery of 36.87 per cent on the Sensex.
Among the power generation companies, NTPC and Tata Power are the best bets for investment, according to analysts. Tata Power's ambitious expansion plans along with its foray into retail power distribution and NTPC's foray into newer projects have made analyst bullish on them. Further, falling coal and oil prices will add to profit margins.
Armed with their strong balance sheet, government support and proven project execution skills, NTPC is expected to add around 65 per cent of the total generation capacity by the central sector, which is 25,115 MW, according a research report by SMC Global.
Tata Power has targeted to increase its power generation capacity from present 2300 MW to 10,000 MW by 2012.
Motilal's Sonthalia sees an upside of 50 per cent within two years for Tata Power stock and has set a target price between Rs 180-190 for NTPC.
In power equipment segment, BHEL and Larsen & Toubro, which trade at attractive levels of Rs 1,386 (PE 25.74) and Rs 870.90 (PE 22.39) respectively, also appear to be good buys for the long term.
In transmission, Power Grid is available around Rs 75 (share listed at Rs 80 two years back). Investors would do well to buy the stock owing to the company's monopolistic nature wherein it enjoys the right to lay grids nation wide.
Analysts also make a case for KEC International. Jaisheel Garg, senior research analyst, SMC Global, said, "Unlike in the past when only 10% of KEC's orders used to come from the domestic market, it now derives about 50% of its revenue. It expects a 70:30 revenue mix (international:domestic), which is also reflected in its current order book."
Alex Mathew , head – research, Geojit Financial, said, "In order to achieve the projected 9%-10% GDP growth, the government has no alternative but to focus on power sector. This augurs well for long term investment in power sector. Investors should start buying at every decline in the bear market."
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