Macquarie Initiates Coverage On Power Finance Corp., REC, NTPC, Power Grid — Here's Why

Noting how the Indian power landscape looks very different from 10 years ago, with more factors in favour of Indian electric utilities, as well as power lenders, Macquarie Equity Research has initiated coverage on four stocks.

The brokerage has initiated coverage on Power Finance Corp. REC Ltd., Power Grid Corp. and NTPC Ltd., with an 'outperform' rating.

Macquarie sees a capex rebound in power generation and transmission networks space after a period of sluggishness. Better power distribution utility health has removed a key overhang for the sector and the power demand supply balance now stands in favour of suppliers, the brokerage said. Key catalysts that could help the upside for the space include higher demand for data centres, higher EV penetration, and weather pattern.

NTPC and Power Grid will be key beneficiaries of the power-capex cycle, according to Macquarie. The brokerage prefers Power Grid Corp. over NTPC due to its greater leverage to renewable growth, that provides longer duration capex visibility. Both stocks trade at relatively lower valuations compared to private sector peers, it noted.

Regulatory and structural changes have reduced credit risk of power financiers. The current growth momentum for companies like Power Finance Corp. and REC looks much better than the previous cycle, Macquarie said. Improving loan growth, sustainable return ratios and diversification of power book towards renewables are key positives, implying lower credit risk, it said.