Elara Capital anticipates a mixed earnings season for the Indian power and renewable energy sectors in the second quarter of fiscal year 2027 (Q2 FY27). While regulated utility companies are projected to maintain stable performance, manufacturers of renewable energy equipment may encounter significant margin challenges.
Top Stock Picks in the Power Sector
The brokerage firm has identified NTPC Ltd, NLC India Ltd, and CESC Ltd as its preferred investments within the power sector. These regulated utilities are expected to deliver consistent earnings, supported by assured returns on their established equity base.
- NTPC: Rated 'Buy' with a target price of Rs 466, suggesting a 45% upside.
- NLC India: Rated 'Accumulate' with a target price of Rs 387, indicating a 52% potential upside.
- CESC: Rated 'Buy' with a target price of Rs 228, implying a substantial 70% upside.
Q2 FY27 Power Generation and Demand Overview
During Q2 FY27, India's power generation saw an 11.2% year-on-year (YoY) increase, reaching 536 billion units (BU). Monthly generation grew by 10.58% in July (181 BU), 11.8% in August (180 BU), and 11.2% in September (173 BU).
- Coal-based generation surged by 13% YoY to 343 BU.
- Hydro generation, however, declined by 20% to 59.7 BU, attributed to a weaker monsoon season.
- Renewable energy generation demonstrated robust growth, increasing by 33% YoY to 101 BU.
Peak power demand remained high throughout the quarter, hitting 270 GW in July (up 23% YoY), moderating slightly to 258 GW in August, and reaching 269 GW in September (up 17% YoY).
Elevated Demand Drives IEX Activity
The sustained high power demand positively impacted electricity trading on the Indian Energy Exchange (IEX). The exchange reported a 12.7% YoY increase in traded electricity volume, totaling 39,685 million units (MU) in Q2 FY27. The average market clearing price in the Day Ahead Market (DAM) rose by 46% YoY to Rs 5.7 per unit, while the Real-Time Market (RTM) price climbed 49% to Rs 5.2 per unit.
Margin Pressure for Renewable Equipment Manufacturers
Conversely, the second quarter is expected to be seasonally weaker for renewable generators, with monsoon-related factors impacting capacity addition and utilization. Companies like JSW Energy and Adani Green Energy may experience some effects from lower utilization. ACME Solar, however, is projected to benefit from its battery energy storage and merchant operations.
Elara Capital warns that renewable equipment manufacturers, including Waaree Energies, Vikram Solar, Emmvee Photovoltaic, and Premier Energies, are likely to face margin pressure. This is primarily due to escalating commodity costs and intense market competition.
- Waaree Energies and Emmvee: Both rated 'Accumulate'.
- Premier Energies: Assigned a 'Reduce' rating.
- Vikram Solar: Rated 'Buy' with a target price of Rs 261, indicating a significant 72% potential upside.
Note: This report is for informational purposes only and should not be considered investment advice. Consult a financial advisor before making investment decisions.