The key factors aiding power PSUs outperformance in 2023

Power sector PSU Stocks have outperformed in 2023. With so much news flow regarding rising demand and the government invoking an emergency clause, CNBC-TV18 takes a deep dive into the power sector.

Demand has been strong and grew in February, with peak demand constantly breaching 200 GW on a daily basis. A double whammy of heat waves and the potential impact of El Nino is expected to keep power demand high.

The anticipated higher demand has prompted the Ministry of Power to invoke an emergency clause in Electricity Act, to support imported coal based power plants to restart and to allow a cost pass through.

Generation trends have remained strong in February 2023 with over 7 percent growth on a year-on-year (YoY) basis. Plant load factor (PLF) trends have remained very strong in this year as PLFs were at 63.7 percent during April 2022 to January 2023 against 57.4 percent in the same period of last year.

Pricing too has remained strong, and is expected to gain further ground going into the summer season. Merchant power prices gained 8 percent on a month-on-month (MoM) basis in February 2023.

It is a combination of factors as utilities are seen as defensive, high dividend yielding bets in volatile environment along with improving fundamentals like PLFs, lower distribution companies (DISCOM) dues, easing supply chain constraints to name a few.

Brokerages stay bullish on these PSU power stocks. All brokerages having a positive stance on NTPC, with HSBC having a price target of Rs 205 per share.

Citi is very bullish on the prospects of Power Grid with a target of Rs 275 per share.