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Power generation sustains momentum

Power generation remained buoyant in Q3FY24, led by surging demand amidst festive season. Generation rose 13% YoY to 416BUs in Q3FY24, albeit on a high base of last fiscal (up 10% in FY23). Generation rose a substantial 25% YoY to 150BUs in October, which was characterized by high humidity. November saw an 11% YoY increase in generation to 130BUs, aided by uptick in economic activity amidst festival season. Generation moderated in December, up just 4.5% YoY to 134BU. Peak demand moderated to 222GW in Q3FY24 from a record high of 243GW in H1FY24 due to reduced cooling demand.

Coal inventory normalized towards quarter-end

Stocks at thermal plants had hit their lowest level in October at 18.55MT, with inventory sufficient to last just seven days. The stocks were much lower than those available during the peak summer months of April and July when coal stocks hovered at ~33-35MT. Coal stocks normalized to 12 days with inventory levels inching to 35MT in December, led by easing demand-supply situation.

Tendering activity picked pace in FY24

Around 48 renewable energy tenders with cumulative installed capacity of 36GW have been floated in Q3FY24. Around 23GW of projects have been auctioned YTDFY24, much higher than 6-9GW in FY23. And ~9GW of solar capacity and 2.7GW of wind capacity have been added YTDFY24, taking the cumulative RE capacity to 132.7GW. Overall installed capacity is 426GW YTDFY24, with thermal sources (coal and gas) contributing the most at 239GW. Hydroelectric capacity, including small hydro projects, accounted for 52GW.

Regulated returns and capacity addition to drive earnings

Expect power companies to post healthy earnings in Q3. Rising power demand, widening peak deficit, incremental renewables addition, the requirement to add incremental thermal capacity (as peak shortages increase) and expansion into new ventures (pumped storage and green hydrogen) are some key drivers for the sector. Increased volume traded on IEX (up 16.9%) and improved performance of its subsidiary, Indian Gas Exchange may keep earnings afloat for IEX. Regulated return, increased generation and capacity additions may benefit NTPC.

JSW Energy is expected to post healthy growth on incremental earnings from acquired renewable assets and capacity addition. We expect NHPC and SJVN to post marginal growth as irregular rainfall and unusual dryness hit hydro generation. NTPC, IEX and NHPC remain our top picks in the sector.