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PWGR key beneficiary of transmission capex upcycle

* The Union Minister of Power, Shri Manohar Lal, announced earlier this week (Link) the finalization of the National Electricity Plan (NEP; 2023-32), which will involve an outlay of ~INR9.2t. The plan aims to expand and strengthen the transmission infrastructure across the country. Details of the plan are not available yet, but a comprehensive document is likely to be published in the coming weeks.

* With the Central government adjusting its transmission capex estimate to ~INR9.2t, Power Grid (PWGR) is strategically positioned to capitalize on these investments. The NEP signifies a significant commitment to capacity expansion and the promotion of clean energy technologies.

Key highlights of the NEP

* NEP (2023-32):

* The Ministry of Power has finalized the plan, with an estimated cost of ~INR9.2t. The plan aims to address the rising demand for electricity and facilitate the integration of renewable energy (RE) and green hydrogen into the grid.

* The NEP aims to meet a peak demand of 458GW by 2032 and expand the transmission network to 0.648m circuit km (ckm) by 2032 from 0.485m ckm in 2024. Further, the transformation capacity is likely to rise from 1,251GVA to 2,342GVA over the period.

* Capacity enhancements and RE integration:

*  Nine HVDC lines with a total capacity of 33.25GW will be added to the existing 33.5GW. The inter-regional transfer capacity is likely to rise to 168GW from 119GW, focusing on the 220kV networks and above.

* Approval has been granted for 50GW of Inter-State Transmission System (ISTS) capacity. A transmission network of 335GW is planned to evacuate 280GW of Variable Renewable Energy (VRE) to the ISTS by 2030, with significant progress already achieved.

* EV infrastructure:

* The revised guidelines for Electric Vehicle (EV) charging infrastructure aim to establish a connected and interoperable network, with plans to increase the number of charging stations to about 100,000 by 2030.

* Sustainability measures:

*  Introduction of two new building codes—ECSBC and ENS—aimed at promoting energy conservation in commercial and residential buildings, is expected to reduce electricity consumption by 18%.

* A target has been set to add 39GW of pumped storage capacity by 2030, which will address storage needs and enhance grid stability.

* Support for hydro projects:

* A new Central Financial Assistance (CFA) scheme supports the development of 15GW of hydroelectric capacity in the northeastern states, with a total cost of INR41b.

* Thermal capacity addition:

* The Ministry has prioritized the addition of thermal capacity to meet peak demand and base load requirements, which currently stand at 217GW. There are 28.4GW under construction, and 12.8GW of new coal-based thermal capacity has been awarded in the last 100 days.

* These initiatives reflect the Ministry's commitment to ensuring sustainable and reliable energy access while furthering India's energy transition goals.

Valuation and view

* We reiterate our BUY rating on PWGR with a TP of INR425. Our TP is based on Dec’26E EBITDA and an EV/EBITDA multiple of 11x, which we believe is reasonable, though at the higher end of the historical range.

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