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Goldman Sachs Names NTPC as Top Pick in Indian Power Sector
India's Electricity Sector Undergoing a Generational Shift
Goldman Sachs has identified India-listed electricity producer NTPC as a "top pick" in the power sector and predicts that the stock will soar by over 30% in the next year. The bank also recommends buying shares of public-sector-utility stock SJVN due to the company's plans for exponential renewable capacity additions. Both NTPC and SJVN are major players in India's power generation industry and are expected to play a significant role in the country's push for solar, wind, and hydropower in the coming years. Goldman Sachs analyst Nikhil Bhandari sees India's electricity sector going through a generational shift as the country aims to balance economic growth with decarbonization.
Economics-driven Transition to Round-the-Clock Renewable Projects
In a research note to clients, Bhandari outlined two key themes in India's power sector: an economics-driven transition to round-the-clock renewable projects and a looming peak power deficit caused by rising demand despite the addition of more power projects. He also highlighted India's unique opportunity in green hydrogen, citing the viability of round-the-clock renewable electricity. Bhandari believes that India's lower electricity costs make the economics of green hydrogen more compelling compared to other large economies like China. He attributes this to higher solar irradiation and a fully integrated transmission grid.
NTPC and SJVN Positioned for Success in Power Transition
Goldman Sachs has set a 12-month price target of 265 Indian rupees ($3.24) on NTPC, representing a potential upside of over 30% from the current share price. The bank sees NTPC, a majority state-owned entity, as a winner in the power transition due to its structural advantage of low-cost debt. Both NTPC and SJVN have the ability to raise long-term debt at a lower cost than their private counterparts, providing them with a funding advantage. While shares of SJVN have surpassed Goldman's price target, the bank remains positive on its renewable energy growth plans and medium-term earnings potential.
Tata Power Faces Challenges in Declining Global Coal Prices
In contrast, Goldman Sachs has initiated coverage of Tata Power with a "sell" rating and a target price of 190 rupees, representing a potential downside of 13% from current levels. Bhandari cites headwinds from declining global coal prices as a key factor that will pressure Tata Power's earnings. The bank also sees limited catalysts for growth in Tata's renewable energy business following its partial sale this fiscal year.
Conclusion: A Potential Opportunity for New Businesses in India's Power Sector Shift
India's electricity sector is undergoing a transformative shift towards renewable energy as the country balances economic growth and decarbonization. Goldman Sachs has identified NTPC and SJVN as major players in this transition and recommends investing in their stocks. This analysis offers valuable insights for new businesses looking to enter the Indian power sector and capitalize on the changing landscape.
One key theme highlighted by Goldman Sachs is the economics-driven transition to round-the-clock renewable projects. This presents an opportunity for new businesses to focus on developing innovative renewable energy solutions that can provide a steady supply of electricity 24/7. India's lower electricity costs and favorable conditions for solar energy make the economics of green hydrogen particularly enticing. Therefore, ventures exploring green hydrogen production technologies could find a receptive market in India.
Another aspect to consider is the looming peak power deficit caused by rising demand despite the addition of more power projects. New businesses that can provide energy storage solutions or grid optimization technologies to address this deficit can stand out in the market and help stabilize the power supply.
However, it is important to be cautious of declining global coal prices, as seen in the case of Tata Power. New businesses operating in the coal sector may face challenges and declining earnings. Rather, focusing on renewable energy sources would align with the current industry trends and provide better prospects for growth.
In conclusion, the Indian power sector's generational shift and transition to renewable energy present numerous opportunities for new businesses. By leveraging the growing demand for round-the-clock renewable projects and addressing the peak power deficit, innovative companies can position themselves for success in this evolving market. It is crucial to stay aligned with the industry's focus on decarbonization and move away from fossil fuel dependence.
Article First Published at: https://www.cnbc.com/2023/07/26/goldman-sachs-indian-stocks-to-buy-in-power-generation-ahead-of-generational-shift.html.svg)
