On July 19th, NTPC shares gained over 3 percent, reaching Rs 193.60 around 1:34 pm today, after Goldman Sachs, a foreign brokerage firm bestowed a favourable buy rating on the power sector giant, considering it as a top pick.
Goldman Sachs initiated the buy rating on NTPC with a target price of Rs 265, indicating a potential upside of 42 percent.
The brokerage firm outlined two pivotal themes that have been shaping India’s power sector and influencing NTPC’s growth prospects. Firstly, the economics-led renewable transition is gaining momentum, driven by the viability of round-the-clock renewables. This transformative approach offers traditional utilities like NTPC the opportunity to unlock a superior business model, leading to higher returns and access to a broader customer base. Secondly, there is a concurrent onset of a peak power deficit cycle, attributed to a consistent rise in peak demand, which is met with insufficient ‘firm’ capacity addition. In this context, NTPC’s strategic advantage of low-cost debt serves as a robust moat, positioning the company as a frontrunner in this transition.
As per Goldman Sachs’ views, NTPC will emerge as a winner in this transition, as its ‘structural advantage’ of low-cost debt will provide a strong moat. Additionally, the rising peak shortages are expected to enhance the valuation of NTPC’s legacy thermal business, similar to what was observed in the previous cycle.
In comparison, Goldman Sachs also gave a buy rating on SVJN at a target price of Rs 55. The brokerage firm downgraded Tata Power to a sell rating at a target price of Rs 190, given the medium-term earnings headwind from global coal cost decline and limited growth catalysts in the renewables business since its partial monetisation in FY23.