Coal India, Powergrid and NTPC are top 3 picks in PSU power space: Rahul Modi, Antique Institutional Equities

In a chat with ET Now, Rahul Modi, Antique Institutional Equities, says least for the next couple of years these names will outperform the broader power names and also provide quite a decent dividend yield which is more than 5%.

Edited excerpts:


Short-term power rates have been under pressure. Do you think this trend is here to stay and is this going to put pressure on earnings for many companies?

The demand growth in the system has been lower than what was expected. That is one of the major reasons we have seen that power prices in the exchange has been lower as industrial demand was not picking up. At least for the next couple of quarters, we will see a similar situation panning out but we are hopeful that because of whole government’s initiative of UDAY, at least the financial aspect would work out quite well. That would translate into higher power demand and we are very hopeful about that. So once that happens, we will see that a lot of these stranded capacities will start getting scheduled.

In terms of CERC and other rulings on UMPPs like Mundra, do you think a revival of companies like Tata Power and Adani Power is likely?

It is difficult to take a call on that. It is like a binary event but what we have seen is that both the stocks have moved up from their lows quite significantly. So there is an expectation in the market of something favourable happening but it is difficult to comment on a couple of these cases because it is in the Supreme Court and is actually quite binary.

What about in the PSU power space? Do you remain constructive on names like NTPC and Power Grid?

If you look at the last couple of years, these names have outperformed the private space significantly because despite the slowdown in the overall power demand and generation space, we have seen that the capex regime for both these companies have been quite strong.

In fact, there are other companies like Neyveli Lignite which have also upped their capex targets for the year. So we are quite bullish on these names. We believe that at least for the next couple of years these names will outperform the broader power names and also provide quite a decent dividend yield which is more than 5%. There would be demand for these stocks.

What are the three top picks that you may have at Antique on the sector?

Well our top pick remains Power Grid, the name that you mentioned, that has shown a structural rally. We like Coal India as well and NTPC would be our top three names because of the capex cycle and the revival in demand.

What about CESC? Do you think a three-way demerger of generation, distribution as well as coal mining will significantly unlock shareholder value?

Since CESC listing, the valuation has been lower than the power sector companies’ valuations. That is due to the holding company discount because they have got many businesses under one name. So demerger will help but one key issue to note is that there may be some time to go because you need certain regulatory approvals and the other statutory approvals which might take some time but yes, it would definitely be positive for the stock.