Despite a slight slowdown in power demand last quarter, market experts remain optimistic about the sector’s long-term growth, especially with the upcoming Union Budget expected to reinforce renewable energy initiatives and infrastructure development.
For FY25, the Ministry of Power received an allocation of ₹20,502 crore, marking a 16% year-on-year increase. Key focus areas include partnerships for small modular reactors and advanced nuclear technologies, a new pumped storage policy, and industry-specific emission targets. The Revamped Distribution Sector Scheme (RDSS) accounts for 61% of this budget, emphasizing smart metering. Financial support is also earmarked for micro and small enterprises to transition to cleaner energy sources and enhance energy efficiency.
The Ministry of New and Renewable Energy (MNRE) saw an allocation surge to ₹19,100 crore, a 143% increase compared to the revised estimate for FY24. This rise is attributed to the PM Surya Ghar Muft Bijli Yojana, a pivotal initiative in India’s renewable energy journey.
Industry Sentiments and Expert Opinions
Satyajit Jain of Ambit highlights the critical need for energy storage solutions, given the expected growth in renewable energy. ‘The PM Solar Rooftop Program aimed to achieve 30 GW of capacity within 2-3 years. As renewable energy grows, storage solutions will play a vital role,’ he said.
Shivam Bajaj of Avener Capital points out that smart metering and enhanced capital expenditure (CAPEX) could expedite project rollouts in the transmission and distribution (T&D) segment. ‘The slow pace of project execution remains a challenge, but increased CAPEX allocations could strengthen underdeveloped infrastructure,’ Bajaj said.
Challenges in Thermal Power
The thermal power sector, expected to add 80 GW of capacity in 5-6 years, faces hurdles due to limited domestic manufacturing capabilities. Sudhanshu Bhansal of JM Financial emphasizes the need for incentives to revive the production of advanced thermal power equipment.
Ravi Singh of Religare Broking, however, predicts a muted focus on conventional energy in the budget. ‘Despite increasing demand, the government’s ability to provide targeted support mechanisms appears constrained,’ he said.
Sector Growth and Market Dynamics
A pre-budget report by Jefferies projects power sector CAPEX to achieve the highest compound annual growth rate (CAGR) among sub-sectors, driven by a 7% year-on-year growth in power demand. Key beneficiaries include companies like Siemens, KEI, and Thermax, noted for their focus on transmission and captive power projects.
Elara Capital’s Rupesh Sankhe points out that CAPEX primarily stems from NTPC, state governments, and private utilities, with renewable energy financing entities like PFC and REC playing a critical role.
Investment Opportunities
Market corrections have created investment opportunities in the power sector. ‘Stock valuations have corrected to a comfortable range, with EV/EBITDA multiples now at 12-13x compared to 15-16x previously,’ Sankhe noted.
However, he cautioned that solar cell and module manufacturers might face pricing pressures due to oversupply. In contrast, power generation companies are poised to capitalize on emerging opportunities.
Ravi Singh adds that despite a 30-40% correction in power sector stocks, valuations remain attractive. ‘Peer comparisons show stocks are trading at reasonable levels, offering growth opportunities for investors,’ he said.
While the power sector faces challenges, particularly in thermal power and project execution, its growth potential remains robust. With the government’s increasing focus on renewable energy, smart infrastructure, and energy efficiency, industry stakeholders eagerly await budget announcements to bolster sectoral reforms and investment prospects.
