Tata Power Co. and Torrent Power Ltd. received a double upgrade from Morgan Stanley, as the brokerage said valuations for utility companies must not just be seen in terms of return ratios.
Valuations for these companies must be seen in the context of growth, visibility and leverage, the brokerage said in a Sept. 26 note. Morgan Stanley upgraded Bharat Heavy Electricals Ltd. to 'overweight', while remaining 'overweight' on NTPC Ltd.
It downgraded Suzlon Energy Ltd., Power Grid Corp. and ReNew Energy Ltd. to 'equal weight' as it changed preference in the sector.
Morgan Stanley On Tata Power
The brokerage gave a double upgrade of 'overweight' rating with a target price of Rs 577 per share from Rs 331 apiece earlier. This implies a 23% upside from the previous close.
Tata Power has a good mix of cash cow-regulated businesses earning assured returns.
It has market-linked businesses like green platform, transmission and pumped hydro.
The company offers earnings growth with a reasonable return on capital employed (ex-Mundra) and controlled leverage.
Quality of growth forecasted is superior driven by green platform versus its past.
Morgan Stanley On Torrent Power
The brokerage gave a double upgrade to 'overweight' with a target price of Rs 2,268 per share from Rs 1,185 apiece earlier. This implies a 21% upside from the previous close.
The company is uniquely positioned in current cycle with large merchant capacity, steady growth in core business, renewable growth picking up and a lean balance sheet.
Renewable energy growth could be driven by rising distribution business renewable purchase obligations and evolving commercial and industrial market.
The brokerage expects Torrent Power to sweat its gas assets/sell higher merchant volumes, given the tightness in supply.
Morgan Stanley On NTPC
The brokerage maintained 'overweight' with a target price of Rs 496 per share from Rs 423 apiece earlier. This implies a 14% upside from the previous close.
NTPC is a strong way to play India's energy security and transition theme.
The brokerage expects it to increase its market share in conventional capacity in this cycle and it has moats to build a strong RE platform.
Further visibility on nuclear capacity additions would add to its earnings momentum over the longer term.
Morgan Stanley On BHEL
The brokerage upgraded the stock to 'overweight' with a target price of Rs 352 per share from Rs 220 apiece earlier. This implies a 25% upside from the previous close.
Coal ordering visibility strong, competition benign.
Legacy contracts likely to be over by the first half of fiscal 2027, improving earnings and cash flow visibility.
Next few quarters BHEL stock will see more volatility versus their other OWs.
Morgan Stanley On Suzlon
The brokerage downgraded the stock to 'equal weight' with a target price of Rs 88 per share from Rs 73 apiece earlier. This implies a 6% upside from the previous close.
Suzlon has risen 106% over the last six months, outperforming Nifty by 78 percentage points.
Stock rally is driven by a strong increase in its order book and improved balance sheet/cash flow from operations.
However, the risk reward as being more balanced again and would await stronger execution before becoming more constructive again.
Morgan Stanley On Powergrid
The brokerage downgraded the stock to 'equal weight' with a target price of Rs 362 per share from Rs 296 apiece earlier. This implies a 1% downside from the previous close.
The company remains a dominant transmission franchise.
Their rating is premised on slow earnings, a rise in competitive intensity.
Returns and execution of existing tariff based competitive bidding assets could be impacted by supply-side constraints.
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