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We expect the utilities under our coverage to report 3% sequential growth in revenue led by higher generation during the quarter and better PLFs. EBITDA and PAT could improve by 3% and 16% QoQ respectively led by moderation in operating expenses and higher sales. Key monitorables going forward are power demand in summer, trend in international coal prices, and the pace of transition to clean energy. Overall, we remain positive on the utilities space with power demand expected to remain strong in the near term and energy transition driving long-term growth. We, thus, remain bullish on utilities that have a balanced portfolio and are working in alignment with energy transition. NTPC remains our top pick in the sector.

* Power demand remains resilient: Overall power demand in India during 4QFY23 was impacted due to the unseasonal rainfall across the country in Feb’23 and Mar’23. In spite of this, power demand grew by 5.6% YoY and 7.5% QoQ during the quarter. With this, annual demand is estimated to be 1,511BU, implying 9.5% YoY growth. Peak demand met has also remained strong ~209-211GW during Jan-Mar’23. We have analysed the key factors which have been driving this demand in our last report

* Strong generation supported by higher coal production: With peak demand constantly breaching the 200GW mark, the same is being met through higher utilisation of power plants as well as increase in coal production. The PLFs of power plants averaged 67.6% in 4QFY23 as against 60.8% in 3QFY23. Simliarly, CIL breached its production target of 700MT for FY23 by producing 703.4MT of coal. CIL supplied 586.6MT coal to power plants during FY23 with a target of 610MT for FY24. We estimate CIL’s profitability to be driven by the trajectory of international coal prices, revision in FSA rates, and sustenance of current momentum in production

* Key monitorables: Going ahead, trajectory of power demand, capex in renewables and storage solutions, coal e-auction prices, and progress on revision in power tariff and coal FSA will be the key monitorables. With temperatures expected to remain elevated during the summer season, and the possibility of El Nino, we expect power demand to remain robust over the next 2 quarters. We, thus, remain bullish on utilities that have a balanced portfolio and are working in alignment with energy transition.

* Our coverage universe: NTPC is expected to report net sales of INR 471bn in 4QFY23, up 27% YoY. EBITDA is estimated at INR 153bn, up 33% annually. NTPC has registered 62% growth in coal production from its captive mines. We expect Power Grid to grow at 12% YoY with net sales at INR 119bn, and maintain EBITDA margin (88%). We expect CESC to report moderate revenue growth (+9%) and a flattish EBITDA on the back of stable Kolkata operations. Going forward, the key growth trigger for the company remains winning new distribution franchisees. Tata Power is expected to witness a decline in profitability on account of the Mundra power plant being barely operational during the quarter as well as softening of Indonesian coal prices, leading to lower realisation from coal mines. Coal India produced 224MT of coal during the quarter, leading to annual production of 703MT in FY23 (+13% YoY). CIL‘s earnings may be impacted in 4QFY23 due to the additional wage provision on account of settlement of wage revisions in Jan’23. JSW Energy could witness a dip in earnings YoY as 4QFY22 had the benefit of higher merchant realisation led by the power crisis last year, which is not the case this year. We currently have a BUY rating on NTPC (TP – INR 205), Power Grid (TP – INR 255) and CESC (TP – INR 100). We have a HOLD rating on Coal India (TP – INR 240), JSW Energy (TP – INR 270), Tata Power (TP – INR 220) and Torrent Power (TP – INR 500).

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