A Colossal Multi-Decade Investment Opportunity Beckons In Indian Power Sector: Motilal Oswal's Thematic View

Motilal Oswal Report

We Initiate Coverage 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 (target price: Rs 425), JSW Energy (target price: Rs 917) and Tata Power (target price: Rs 530) with a Buy rating and NTPC (target price: Rs 450) and IEX (target price: Rs 226) 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.

Investment opportunity of Rs 40 trillion and more:

We estimate an investment opportunity of Rs 40 trillion (Rs 34 trillion in firm capex + Rs 8 trillion 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.

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