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Public sector power companies may be ripe for picking

When the heat is on in the stock market, falling share prices often bring stocks down to levels where they become value picks. And that seems to be the case in the power sector. Manik Malakar reports.

business Updated: Aug 09, 2013 00:05 IST
Manik Malakar

When the heat is on in the stock market, falling share prices often bring stocks down to levels where they become value picks. And that seems to be the case in the power sector.

Problems related to fuel shortage and land acquisition amid an overall industrial slowdown have taken a toll on the sector, but investment may be worth it at current levels in companies such as NTPC, PowerGrid and SJVN (formerly Satluj Jal Vidyut Nigam), analysts said.

Private sector companies like Reliance Power and Tata Power are conspicuously absent in the analyst views.

"One of the few good things that can be said for the power sector is that tariff hikes are now happening regularly, and that most states in India have gone in for tariff hikes," said Debasish Mishra, senior director at consulting firm Deloitte. On an average, tariffs have increased by 18 to 20% in the past year and a half.

"I think that the proposed reforms in coal (enabling power price hikes) will be a positive for the sector," said Rupa Shah, research analyst at brokerage firm Prabhudas Lilladher.

"If you have bought (power company stocks) at lower levels, then hold," he said. He is positive on generation firms NTPC and SJVN.

Fuel availability, especially in gas, remains a problem, noted IDBI Capital Markets' head of research Sonam Udasi, but added she was bullish on distribution giant PowerGrid and also NTPC.

The sector is no cakewalk for investors. A weaker rupee has made imported coal expensive even as allocation of local coal blocks is steeped in political controversy.

"One should invest selectively in the sector keeping in mind the earnings growth, debt profile and management pedigree," said Vikas Inder Jain at Religare, who sees an upside in NTPC.