Kotak Institutional Equities has issued a stark warning regarding the valuation of Indian power stocks, stating that the recent rally has made them 'rich' and does not offer an attractive entry point for investors. The domestic brokerage firm has largely assigned 'Sell' or 'Reduce' ratings across its coverage of electric utilities, citing limited near-term earnings benefits and significant execution risks.
Key Ratings and Target Prices from Kotak
In its latest strategy note, Kotak highlighted that improved performance of utility stocks, driven by anticipation of rising power demand, has pushed valuations to unsustainable levels. The firm believes these valuations do not fully account for potential disappointments in capacity addition targets.
- Tata Power: Assigned a 'Sell' rating with a target price of Rs 310.
- NHPC: Assigned a 'Sell' rating with a target price of Rs 335.
- NTPC: Assigned a 'Sell' rating with a target price of Rs 335.
- JSW Energy: Assigned a 'Sell' rating with a target price of Rs 455.
- Coal India: Assigned a 'Sell' rating with a target price of Rs 370.
- Power Grid: Assigned a 'Reduce' rating with a target price of Rs 295.
- CESC Ltd: Assigned a 'Reduce' rating with a target price of Rs 172.
- ACME Solar Holdings Ltd: The sole exception, assigned a target price of Rs 340.
Capacity Targets and Earnings Performance
Kotak's analysis revealed a mixed bag concerning companies meeting their renewable capacity addition targets for FY2026. While NTPC, ACME, and NHPC largely delivered on their objectives, several key players fell short.
- Tata Power Company Ltd, JSW Energy, and CESC Ltd were noted for missing their renewable capacity addition targets. Tata Power, for instance, added 968 MW against a 1.4 GW target, focusing on its 3P-EPC book.
- Reported earnings for most utilities have been lackluster, showing low single-digit growth when excluding deferred tax benefits.
Specific Q4 FY2026 performance highlights included:
- NTPC's consolidated net profit was bolstered by a deferred tax benefit and higher share of joint venture profits.
- NHPC's standalone PAT benefited from a deferred tax credit and profits from its Parbati and Subansiri projects.
- JSW Energy reported an impressive 87% year-on-year growth in Q4 consolidated EBITDA, largely due to the Mahanadi & O2 acquisitions (3.1 GW operational) and organic capacity additions.
- Tata Power's consolidated Q4 FY2026 PAT of Rs 1,090 crore (up 6% YoY) was supported by a true-up order at its Delhi discom, improved profits from its cell & module facility and IEL, but was negatively impacted by losses at Mundra.
The brokerage firm's assessment underscores a cautious outlook for the power sector, suggesting that current market prices may not reflect underlying fundamentals or future execution challenges.