The power sector has experienced a noticeable slowdown in demand during Q3FY25, with key players like Tata Power, Suzlon Energy, NTPC, NHPC, BHEL, and JSW Energy facing a challenging market landscape. A recent report by JM Financial offers insights into this phase while highlighting potential opportunities for growth.
Sluggish Demand and Changing Market Dynamics
Between October 1 and November 27, power demand growth showed limited momentum, with energy demand increasing by just 2.2% YoY and peak power demand by a marginal 1.1% YoY, as per JM Financial. This slowdown is largely attributed to unpredictable weather conditions, including extended monsoons, which reduced power requirements in agriculture.
On the supply side, power generation rose by 6% YoY, creating a surplus that led to a drop in merchant power rates. However, analysts believe this trend is temporary and does not indicate a structural shift in the sector.
Utilities' Performance: Winners and Losers
- Hydropower generation surged by 7% YoY, outperforming other segments.
- NTPC reported a moderate growth of 1.2% YoY, while JSW Energy grew by 9% YoY, driven by capacity additions.
- Tata Power Mundra posted a 9% YoY increase, showing resilience despite sector-wide challenges.
- Torrent Power, however, saw a sharp decline, with generation dropping by 35% YoY.
- Coal and gas-fired plant utilization rates (PLFs) dropped to 69% and 13%, respectively, compared to the previous year's levels.
Industry Insights: Strategic Focus of Key Players
- Tata Power and CESC are aggressively investing in renewable energy (RE) expansions, paving the way for long-term growth.
- JSW Energy continues to diversify by targeting distressed thermal assets and expanding its footprint in RE.
- Suzlon Energy remains focused on increasing capacity while exploring geographic and business diversification.
Market Outlook: Opportunities Ahead
Despite current challenges, JM Financial maintains a positive long-term outlook for the sector, supported by increased capital expenditure across the power value chain. Their recommendations include:
- Buy ratings for Tata Power (₹501), Suzlon Energy (₹81), NHPC (₹108), JSW Energy (₹791), and CESC (₹206).
- A sell rating for SJVN (₹71) due to weaker performance despite recent capacity additions.
Historically, power demand regains growth from November, but this trend remains subdued in FY25. However, as weather conditions stabilize, a recovery is expected, creating opportunities for strategic growth in the sector.
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