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We expect utilities under our coverage to report 6% YoY revenue growth driven by 11% YoY growth in power demand. However, earnings to remain flat (EBITDA -2.6%, PAT -0.5% YoY). Key monitorables going forward are sustenance of power demand, trend in international coal prices, and the pace of transition to clean energy. Overall, we remain positive on the utilities space with likely stability in power demand, pickup in thermal capex and continued momentum in RE additions.

* Power demand remains strong: The demand for power continues to grow (9MFY24: energy/peak, 8.6%/14%) – it is significantly higher than all earlier growth rates (FY05- 15/FY15-20: energy/peak - (6.1%/5.4%)/(3.9%/4.4%)). The PLFs of power plants averaged 68% in 3QFY24 as against 60% in 3QFY23 and 67% in 2QFY24. We expect peak demand to remain high going forward along with sustenance of robust power demand on the back of pick-up in industrial activities and general elections.

* Fuel prices: Indonesia coal prices (5,900 GAR), which have corrected sharply (USD 218/tn in Mar’22 to USD 93/tn in Dec’23) are consolidating (USD 90-95/tn) and are expected to remain range-bound. Similarly, Australian coal prices (6,000 GAR) (USD 429/tn in Mar’22 to USD 112/tn in Dec’23) and South African coal prices (6,000 GAR) (USD 392/tn in Mar’22 to USD 131/tn in Dec’23)have also corrected.

* Our coverage universe:

- BHEL’s net revenue to increase by 24% YoY led by increased execution in power segment. We expect the company to report positive EBITDA and PAT due to increasing operating leverage.

- Suzlon’s net revenue to improve 7% YoY with despatches of 3MW series. Earnings to improve 135% YoY and 80% QoQ due to significant reduction in finance cost led by debt repayment in 2QFY24.

- JSW Energy’s net sales to grow 28% YoY driven by higher power demand and modest merchant sales. 175% YoY growth in PAT seen due to reduction in fuel cost.

- NTPC is expected to report net sales of INR 447bn in 3QFY24, up 2% YoY. EBITDA is estimated at INR 128bn and PAT to be flat.

- We expect Power Grid to report a flattish quarter with net sales at INR 115bn, and EBITDA margin of 86%.

- CESC is expected to report 12% YoY revenue growth led by strong demand in the eastern region (West Bengal). Going forward, the next trigger for the company remains pending tariff revision and winning new distribution franchisees.

- NHPC and SJVN sales are expected to decline YoY due to lower hydro generation v/s 3QFY23; (3,288MU vs 3,653MU) for NHPC and (1,215MU vs 1,395MU) for SJVN.

- Tata Power’s net sales to improve 10% YoY led by improved power demand and incremental output from Mundra.

- Coal India produced 199MT (+10% YoY) of coal during 3QFY24 and sold 191MT coal (+9% YoY). However, earnings to be flat due to moderation in e-auction prices.

- We currently have a BUY rating on NTPC (TP – INR 270), Power Grid (TP – INR 235), Suzlon (TP – INR 37), BHEL (TP – INR 225), CESC (TP – INR 100), NHPC (TP – INR 58), JSW Energy (TP – INR 500), Tata Power (TP – INR 350) and Coal India (TP – INR 360) and a HOLD rating on SJVN (TP – INR 67) and Torrent Power (TP – INR 685). We will review our TP and ratings post 3QFY24 results.

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