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Distorted weather patterns impacting demand

India’s power sector closed with a modest 3% yoy growth in power demand in FY2025 on the back of an unfavorable base (7.8% yoy growth in FY2024) and a normal monsoon. The unseasonal rains in the month of May 2025 will likely impact demand in 1HFY26 as well, although we maintain the mediumterm growth trajectory around the 5% mark. Capacity addition did pick up pace in FY2025, with 33 GW of installations, led by the renewable sector (29 GW). However, earnings growth for listed utilities disappointed on account of (1) execution slippages in the commissioning of new capacities and (2) lower merchant tariffs for companies such as JSW Energy, although cushioned by non-recurring incomes and/or favorable tariff orders.

Weak demand growth for FY2025, not so encouraging start to FY2026

Power demand in India grew 3% yoy for FY2025 to 1,683 BU, considerably lower than the 7.8% yoy growth in FY2024. While FY2025 started on a stronger note with a severe heat wave (+7.5% yoy growth in 1QFY25), this was followed by a surplus monsoon, leading to (-)0.7% yoy growth in power demand in 2QFY25, even as 2HFY25 saw some recovery at 2.8% yoy. FY2026 has also started on a soft note, with flat YTD (Apr and May) power demand, again impacted by unseasonal rains across the country and a strong base. Notwithstanding the short-term weather patterns and the base effect, we highlight that the power demand in India is closely linked to the GDP growth, leading us to maintain our 5.6% CAGR estimate in power demand over FY2025-30E.

Capacity additions picking up pace but still some room for improvement

India added an impressive 33 GW of power capacities in FY2025 (28.7 GW RE, 4.2 GW coal, 0.8 GW hydro), improving upon the pick-up seen in FY2024, with 26 GW addition (18 GW RE, 6 GW coal). Both are a marked improvement over the 15 GW average annual capacity addition in the preceding six years. India currently has 34 GW of under-construction coal capacity to be commissioned in the next 6-7 years but would need to further accelerate the pace of renewable capacity addition to sustain the 5-6% demand CAGR. We expect capacity addition to improve further to 41/40 GW in 2026/27 and 46 GW in 2030, largely led by renewables.

Earnings print was weak; capacity targets were missed in FY2025

Our coverage universe of electric utilities reported modest earnings performance, with most companies missing capacity addition targets during the year, coupled with weak merchant tariffs (down 16% yoy) further weighing on the earnings performance. Acquisitions by companies: NTPC Green’s acquisition of Ayana (2.1 GW) and JSW Energy’s KSK Mahanadi (1.8 GW) brought some respectability to capacity addition targets. Favorable regulatory orders supported the earnings of Tata Power and NTPC. Valuations have come off from the peaks seen in FY2024 but still do not fully factor in the execution risks that could impede earnings growth.

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