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00:00Good afternoon and welcome back to NDTV Profit, you're watching MarketIQ and I'm your host
00:11Meeka Barve.
00:12Well, in today's first half segment of this show, we're going to focus on the power sector,
00:17which has been buzzing off lately, especially today.
00:19And this was on the back of certain counters that have been buzzing in trade today.
00:22And that is power financing companies like Power Finance Corporation, as well as REC
00:28that are, like PFC up 4% in trade today and REC up 3%.
00:32We also have counters like SJV and that are, you know, up 3% in trade today.
00:36And to talk about the power sector as a whole, we have Rupesh Sankhe, who is the Vice President
00:42of Research at Alara Capital.
00:44Good afternoon, Rupesh.
00:49Yes.
00:53You know, Rupesh, I wanted to ask you, I know you don't track the power financing corporations
00:59as it is.
01:00But do you have any view on these counters?
01:01Definitely.
01:02If you look at the next 10 years, we're expecting close to 45 lakh crore kind of investment
01:10in the entire power ecosystem, like from generation, transmission, distribution, and other smart
01:16metering, all these schemes which are there.
01:19So close to 45 lakh crore of investment, unfortunately, in the next 10 to 12 years is huge.
01:26If you look at the current, their portfolio, asset portfolio, I think they can easily achieve
01:3245% kind of load disbursement towards the power sector, which is very strong.
01:40And in terms of NPA issues, we don't see any kind of NPA issues there also, because most
01:46of these are low cost segments, like renewable energy, new energy verticals are there.
01:53So that issue is also not there.
01:55So definitely, in terms of load disbursement, they are very well placed and to grab this
02:01strong opportunity which are there.
02:03So we as a house are positive of PFC and REC from the current levels because of this kind
02:09of opportunity, which are there in the next 10 to 12 years.
02:13And Rupesh, any view on IREDA?
02:16I know it's not, you know,
02:17IREDA also, that is also in the same segment of power financing.
02:22Their asset is slightly lower than the PFC, REC.
02:27But if you look at their recent, the MOEs they have signed, they have become more aggressive
02:32on the renewable energy front.
02:34I think that company also will grow with a higher pace as compared to PFC and REC because
02:40they have low base effect is there.
02:43So IREDA is also, we are positive on that company, we don't have official coverage.
02:49But these three companies, PFC, REC and IREDA will get maximum benefit from the opportunities
02:55which are coming up in the entire power ecosystem.
03:00Thank you.
03:01Thank you, Rupesh, for that.
03:02Well, there you see a positive outlook on the power financing corporations as a whole.
03:06You know, Rupesh, let's also talk about IEX.
03:08Now, the company did post its June monthly update, overall volumes up 19% on a year on
03:13year basis.
03:14What's your view on the company and, you know, growth going forward?
03:18IEX is definitely getting benefit of high peak demand.
03:22So last quarter, we have seen peak demand around 250 gigawatt.
03:26The same year, last year was around 225 gigawatt.
03:29So definitely they got benefit of higher volumes.
03:32So on a quarterly basis, their volume broke by close to 19%.
03:37Second point is that whatever the bilateral market which are there, 40-50 billion units,
03:42is gradually shifting on the X-Edge.
03:45So they're getting benefit from that as well, because in the bilateral market, price discovery
03:50is 25% higher than the X-Edge price.
03:53So most of these discoms are coming on the X-Edge to get benefit of higher volumes.
03:59So in terms of market share loss, the other players, X-Edge players like PXIL or HPX have
04:06not launched the big product like their head market and RTM market, which is almost 80%
04:12of the overall volumes.
04:14So that is getting delayed.
04:16And again, market coupling, which is already in the shadow pilot observation, I think that
04:22might get delayed because new power industry will again have a look on the cost-benefit
04:27analysis.
04:28So the sentiment has changed and we are expecting a 14-15% kind of volume growth going ahead
04:35because of increasing peak demand.
04:38That will have a lot of...
04:40Even the supply side constraints are coming down.
04:43If you look at the core situation and the power plants, which is very, very good at
04:4925-30 days, that will also have, will boost volumes on the X-Edge.
04:54So overall valuation perspective as well as the earning perspective, we are positive on
04:58the stock at this current level.
05:01Yes.
05:02And you mentioned, I'm glad you mentioned peak power demand, which hit an all-time high
05:07in May 2024.
05:09And so did solar for that matter.
05:11But could we see some moderation in the upcoming demand with the onset of monsoons?
05:17And what's the outlook on there and how would this impact companies?
05:21Definitely, if you look at it, third and fourth quarter is always high in terms of peak demand.
05:28But for the full year, we're expecting again, next year, we're expecting close to 260-270
05:33kind of a peak demand, starting from Jan onwards.
05:37So definitely, what market were earlier factoring, 0.8-0.9 times power demand to GDP growth.
05:46But that band has definitely shifted towards 1.2-1.3x power demand to GDP growth.
05:53And largely all the new demand drivers like e-mobility, data center, a lot of green hydrogen,
06:01those will drive the power demand in the next 10-12 years.
06:06So definitely, power demand will remain on the higher side.
06:10Most of these companies are regulated, their model is regulated, fuel cost is passed through.
06:17So there we don't see much impact.
06:19But merchant players like JSW Energy or Adani Power, those are merchant players, will not
06:29see much impact on the earning profile because next year, we're also expecting higher peak
06:34demand.
06:35And today, you might see that peak demand for 2030 might get revised to around 400 gigawatt.
06:41That will also have a long-term positive impact on all the developers, conventional players.
06:48Thank you, Rupesh.
06:50You know, I also want to talk about thermal energy.
06:52Now, yes, India is focusing on renewable energy going forward, but it's not going to back
06:57down from thermal capacity additions itself.
07:00And thermal capacity is going to drive baseload of India's power needs.
07:05So what's your view on the same and the key beneficiaries in the thermal space?
07:09So definitely, if you go with our national electricity plan, which was announced earlier,
07:17for 850 gigawatt of capacity, and factoring for 450 gigawatt of renewable energy at least
07:24a 30% PLF, we need a thermal capacity in place, because India's power demand is growing at
07:318-9%.
07:33And that will require huge renewable energy, which is not going that pace.
07:37So definitely, we need a thermal capacity, like coal-based capacity.
07:42And earlier, we have – earlier, our under-construction capacity is currently 30 gigawatt, but we
07:48need another 60-70 gigawatt of thermal capacity to cater this incremental demand.
07:54And definitely, we will see a lot of greenfield project on the coal thermal side also.
07:59So key beneficiaries here as NTPC, because they are very active on the thermal side,
08:04coal thermal side.
08:06So we can expect some capacity expansion there, capacity enhancement.
08:10Other than that, on the equipment side, opportunities there for the BHEL, they will get benefit
08:19of supply from the BTG component side.
08:23And some of the other EPC players will also get benefit out of this new thermal ordering
08:29activity was started.
08:30So definitely, conventional players – and again, power grid cooperation, because we
08:35need a grid to connect this power generation capacity to the load center.
08:40So power grid also will get benefit out of that.
08:43So we are expecting these companies to continue to get benefit of a demand supply mismatch
08:50there, and a new phase of capacity expansion that likely to come in the next six to seven
08:57years.
08:58Yes.
08:59On the renewable side, offshore wind energy, the viability gap funding coming in from the
09:04government, an outlay of over 7,000 crores, but players like Suzlon Energy and Inox Wind
09:09in the past have mentioned that they don't want to enter the space.
09:12Now, do you think this would be a push for them to consider it?
09:16And what's your view on the future outlook?
09:18See, current capital cost for offshore wind energy is close to 11-12 crore per megawatt.
09:27If you want to have a level playing field with other renewables like solar or onshore
09:34wind, we need a tariff to be around 4.5 rupees per unit.
09:40Then only in the RTC tenders, the offshore wind will play a major role in terms of – once
09:47battery storage comes into picture, it's a round-the-clock power supply.
09:51So viability gap funding must be there.
09:56And we have already identified close to 30 gigawatts of capacity based on offshore wind
10:02science.
10:03So definitely, I think there could be this viability gap funding will remain there for
10:10some time.
10:11At the same time, we are expecting some technological advancement which will bring down the capital
10:18cost also.
10:19But as of now, offshore wind project is not viable and we need some sort of subsidy or
10:27some budgetary outlay for this to take off in a big way.
10:32But definitely, I think Suzlon and Enoxwind, they are only few players will get benefit
10:37out of that.
10:38And we have some conventional players who are keen to go for this offshore wind, will
10:44also get benefit of that.
10:46But it's a long-term story.
10:47Yes, it is a long-term story.
10:49But do Suzlon Energy and Enoxwind have those capacities?
10:52Because offshore wind does require larger gigawatt of turbines.
10:56So do they have the capacity or the capability to meet this in the future?
11:03Will it be very import-dependent?
11:04You are absolutely right.
11:05We don't have that 7, 8 megawatt kind of towers there.
11:13We don't.
11:14It's a different technical capabilities required.
11:17As of now, we don't have that kind of capabilities.
11:20Suzlon, Enoxwind is limited up to 3 megawatt of turbine towers.
11:28But yes, they will have some joint venture partnership with the foreign suppliers, equipment
11:36suppliers.
11:37But they will have on their R&D because in the long-term, potential is very high.
11:44So definitely, they will think on it and will do some sort of a technical upgradation once
11:51they get more clarity in terms of viability of this project.
11:55Yes.
11:56I also want to touch a little bit about hydro power plant generation.
11:59Now the area has been stagnant for a period of time, but it did show 9% growth in May.
12:06What's the outlook on this area and in terms of potential for India?
12:10And who benefits?
12:11Yes.
12:12Current installed capacity is 46,000 megawatt.
12:15And if you go with the HP or hydro power obligation, that every discount has to compulsorily buy
12:23their own, our portfolio peaks by 2030, we need to increment 25,000 megawatt of capacity.
12:31Only players we have is NHPC and HGM, which are very aggressive on the hydro side.
12:38In the last 10-20 years, we have only seen 2% kind of a CHR growth in terms of hydro
12:44capacity addition.
12:45But next 10 years, we are expecting around 12 to 15% kind of a capacity addition on the
12:51hydro side because of this policy push.
12:56Then in terms of RTC around the clock, we need hydro as a technical backup to ramp up
13:04the capacity when we need the power, when there is a grid instability.
13:09So hydro will play a major role in RTC mechanism, also battery storage.
13:15So definitely, I think we have seen recently that NHPC, HGM has signed many MOEs with the
13:23state governments to go ahead.
13:26Even most of their large projects have got clearances also, like a debunk in case of
13:31NHPC.
13:32There are other cross-border activities we have seen in terms of Nepal, all those things.
13:40I think they are also exploring these appropriate hydro opportunities which are there.
13:45So this segment will have already come into picture in the last one and a half years.
13:50But long way to go, 10-15 years, we will see a lot of hydro projects getting commissioned
13:55and only this place will get benefit out of that.
13:59And with the new government now being formed in the upcoming budget, what are your views
14:04on the kind of push or policy support that the power sector does need or could have in
14:10terms of, that would be beneficial for the sector?
14:14What are your views on the same?
14:16I think if you look at Mr. Khattari, he has joined as a Minister of Power.
14:22His background in Haryana discoms, when Haryana discom losses were close to 29% in 2014, it's
14:31now close to 13.5%, which is the lowest in the entire discoms we have currently, 37 discoms
14:40we have.
14:41If you look at the billing efficiency, it's very good there.
14:45And they have done a lot of CAPEX on the T&D space also.
14:48Tariff has not increased, but they are the most profitable discom in India as of now.
14:55I think because of that, we believe that the reforms which has started in the last 10-7-8
15:04years will continue.
15:06The T&D CAPEX reforms, higher allocation for renewable energy side, battery storage or
15:15the hydro space will continue.
15:17And maybe we will focus more on the smart metering, how to bring down T&D losses across
15:23India, that will bring more efficiency on the distribution side.
15:28Also, we will see a lot of continuity in the reforms.
15:32So those reforms will continue and the sector will see very good days ahead in terms of
15:38improving their financial as well as operational efficiencies going ahead.
15:44Thank you so much, Rupesh, for joining us.
15:46And we for sure will have a more detailed chat later in the future.
15:51Yes, well, viewers, that was the outlook on the power sector.
15:53But it's time to slip into a short break.
15:55But do stay tuned.
15:56We have KEC International's management on the other side.
16:01Thank you.