Power sector is full of opportunities

Power sector is full of opportunities

By Rajiv Kapoor | 9 October, 2016

Power is one of the most critical components for infrastructure development, with India’s power sector one of the most diversified in the world. Sources of power generation in our country range from conventional sources such as coal, lignite, natural gas, oil, hydro and nuclear power to viable non-conventional sources such as wind, solar, and agricultural and domestic waste. 

The Indian power sector is undergoing a significant change, with sustained economic growth continuing to drive electricity demand in India. Government of India’s focus on attaining “power for all” has accelerated capacity addition in the country. A large number of global and domestic companies have committed to generate 266 GW of solar, wind, mini-hydel and biomass-based power over the next five to 10 years. 

This initiative would entail an investment of about US $310-350 billion, thereby providing immense opportunities in power generation, distribution, transmission and equipment. Government of India has identified initiatives in the power sector to promote sustained industrial growth such as approval of the UDAY scheme for financial revival of power distribution companies ensuring affordable and available power for all. Also it has eased coal availability to power projects by transferring mining leases and forest clearance approvals to the winning bidders of coal blocks. There are many power related stocks listed on our exchanges, but from fundamental and technical perspective, GIPCL looks quite attractive among others and hence our focus on this company in this column this week. 

Sources of power generation in our country range from conventional sources such as coal to viable non-conventional sources such as wind and solar.

Gujarat Industries Power Corporation Co Ltd or GIPCL incorporated in 1985 was jointly promoted by Gujarat Electricity Board (now Gujarat Urja Vikas Nigam Ltd), Gujarat Alkalies and Chemicals Ltd, Gujarat State Fertiliser and Chemicals Ltd and Petrofils Cooperative Ltd to cater to their captive power requirements. The company which began as the first group captive power plant in the country has transformed into a dynamic independent power producer with a total installed capacity generation of 815 MW. The company management expects to post an EPS of Rs 15 and Rs 17.50 for FY17 and FY18, respectively, with revenue and profit after tax expected to grow at a CAGR of 9% over the next couple of years. At the current market price of Rs 90, the Gujarat Industries Power Co Ltd stock trades at a P/E ratio of 6 for FY 17 and merits a buy for medium term perspective. Analysts and brokers are bullish on the GIPCL scrip with a price appreciation target of Rs 125 in eight-nine months..

Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.

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