Power Grid The Most Attractive Bet Among Peers, Says JPMorgan

Predictable growth in a regulated tariff regime makes state-run transmission company Power Grid Corporation Ltd. the best bet in the sector.

JPMorgan has selected Power Grid as its top pick among the six top power companies when rated on growth, profitability and valuations. Nearly 83 percent of the analysts polled by Bloomberg have a ‘buy’ rating on the stock, with a potential upside of 13.9 percent.

NTPC Ltd. ranks second on the list as the brokerage said the company is likely to seen an uptick in project commissioning in 2017. Merger and acquisition opportunities are expected to be a key growth factor for the state-run power producer, along with its private peer JSW Energy Ltd.

JPMorgan is overweight on JSW, which is the only private sector power producer with a healthy balance sheet. The company not only has steady operations with strong thermal plant load factor but positive cash flows, the brokerage said.

Tata Power Ltd. and Adani Power Ltd.’s growth prospects are linked to on what Supreme Court will decide on the compensatory power tariff case related to Mundra power project in Gujarat. The foreign brokerage has downgraded Tata Power to neutral from overweight and has an ‘avoid’ for Adani.

Adani has been reporting losses for the past six years but infusion of equity by promoters has arrested the fall in share prices to some extent, the report said. A turnaround is unlikely in the next financial year, JPMorgan said.

The stock at Rs 39.90 apiece is above its 12-month Bloomberg consensus target of Rs 27.08. More than 64 percent of the analysts polls by Bloomberg have a ‘sell’ rating on the stock.

The brokerage sees stable earnings but not growth and low return on equity for Reliance Power Ltd., which makes up the last two companies on its list along with Adani.