Electric Utilities: Power demand turning the corner, earnings still holding back by Kotak Institutional Equities
Power demand turning the corner, earnings still holding back
India’s power demand has inched up in recent months but still remains muted on a YTD basis at 1.7% yoy. Capacity addition has been strong—India added a remarkable 53 GW in 10MFY26, including 8.8 GW of coal-based capacities, against a cumulative addition of 59 GW in the last two years. Demand-supply dynamics are more benign, reflecting in lowered bidding activity and fewer takers for plain-vanilla solar capacities. Earnings performance for listed utilities remains unimpressive, with new capacity addition continuing to lag targets, although weak stock performance has made valuations more palatable.
Flat power demand in 3QFY26 but picking up in recent months
Power demand in India was flat in 3QFY26, likely impacted by an elongated monsoon, which extended till October 2025. Demand has improved in Dec 2025 and Jan 2026, however, the YTD FY2026 growth is still sluggish at 1.7% yoy. This demand weakness follows a modest 3% yoy growth in power demand for FY2025, compared with 10/15-year CAGRs of 4.7%/4.9%. We highlight that an extended monsoon leads to a drop in demand from the agricultural sector (a fifth of overall power demand), as the need for irrigation pumps drops, while higher ambient temperatures also lead to a drop in power demand from households & commercial premises. Nevertheless, we expect power demand to mean revert to ~5% growth on the back of 6-7% real economic growth.
Rapid capacity addition continues to positively skew demand-supply dynamics
India has added an impressive 53 GW of capacity in YTD FY2026, comprising 40 GW renewable and 8.8 GW coal capacities. The strong capacity addition, coupled with muted power demand over the last two years, has favorably tilted the demand-supply dynamics. India now has 35 GW of under-construction coal capacities targeted for commissioning by FY2030E and ~148 GW of under-construction renewable capacities (including 100 GW of solar and 23-24 GW each of wind/ hybrid capacities). Incremental renewable bidding has come off in FY2026, with any new bids for hybrid/FDRE/storage projects only, instead of the plain vanilla solar projects. As highlighted by us earlier, we expect PPAs to be signed for the hybrid and FDRE capacities, while the solar LOAs (~11-12 GW) could likely see some cancelations.
Listed players continue to deliver poor earnings growth
Our coverage players have also seen some improvement in capacity addition in YTD FY2026, but they still continue to lag targets, largely owing to delays in transmission connectivity. Earnings performance across the coverage remains unimpressive. We highlight that the absence of earnings growth, execution slippages and weak power demand have led to disappointing stock performance. Valuations have come off from peaks but still do not offer an attractive entry point in the absence of earnings improvement.
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