Top 5 Power Companies in India: Best by Fundamentals

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Synopsis:

The power sector is a great sector to invest in, but traders need to be aware of which companies are worth investing in. Here’s a look at the top 5 power companies in India that have been rated keeping their fundamentals in mind.

Introduction to India’s Power Sector

Power is one of the most important elements of a country’s infrastructure as it contributes to its economic growth and welfare. India’s power sector has always focussed on accessibility to power affordably and sustainably. The country’s main sources of power, conventionally, include coal, natural gas, hydro and nuclear power. However, of late, the country has also started emphasising the use of non-conventional sources of power like solar and wind amongst others.

With the electricity demand in the country increasing rapidly, the companies with the top 5 power stocks in India are working to meet the growing power demand. Under the Ministry of Power, India has transformed itself from a country with a power shortage to one with a power surplus. With the ministry establishing a single national grid and securing the power distribution network, it has achieved universal household electrification.

India is the world’s third-largest producer and consumer of electricity. In 2021, the country was ranked fourth in wind power, solar power, and renewable power installed capacities.  By 2026, the government plans to replace coal with renewable energy generation with the help of the 81 thermal units it has identified. In this blog, we will have a look at the top 5 power stocks in India that are helping the government achieve this goal.

Importance of Fundamental Analysis in Power Company Evaluation

The concept of fundamental analysis entails the examination of the fundamentals of a company to help gauge or determine its intrinsic value. As a part of fundamental analysis, factors such as economic, financial, non-financial, and industrial values are taken into account. The process of Fundamental Analysis helps in making long-term predictions. This concept, together with technical analysis helps financial analysts arrive at better investment and financial decisions.

When done right, fundamental analysis can help investors steer clear of making any hasty investment decisions that might only lead to long-term losses. Another benefit of conducting a thorough fundamental analysis is that it helps identify new companies that have good growth potential and can lead to gains in the long run. Since the fundamental analysis of companies helps analysts recognize any potential risks in the near future, it also gives them time to think of solutions that can help evade such risks.

Two main types of fundamental analysis help analysts and investors. These are listed below:

  • Qualitative Approach:

    Qualitative fundamental analysis is focused on analysing the unquantifiable aspects of a company to determine its stock value. These factors could include aspects like brand value, management experience and efficiency, employee satisfaction, customer feedback etc. Most of the time, these factors cannot be measured numerically. However, they are great indicators of the overall position and its business potential. Investors and analysts should remember that using qualitative analysis alone may not give the most accurate prediction. This is why it is important to combine it with quantitative analysis.

  • Quantitative Analysis:

    Quantitative analysis studies the numerical factors to gauge the value of a stock. Mostly based on statistics and mathematical calculations, it helps analyse all kinds of quantitative data, statistics, or figures to make behavioural predictions.

Criteria for Selection of Power Stocks

Below is a list of the factors to keep in mind if you are planning to pick from the top 5 power stocks in India:

  1. Mix of Energy

    Before investing in a power stock, investors should consider and analyse the company’s energy mix and how soon it plans on transitioning to cleaner and more renewable power sources.

  2. Market Position

    Another factor to consider before investing in a power stock is to analyse the company’s market standing. This includes its market share, growth prospects and the competitive advantage it has over other power companies.   

  3. Regulatory Policies

    Investors also need to stay on top of any regulatory policies that are in effect in the power sector. This needs to be taken into consideration, particularly with renewable energy sources.

  4. Impact on the Environment

    Since sustainability has become a crucial issue, it is important that investors also consider the environmental impact and the carbon footprint a company is leaving behind before investing in its stocks. Power companies paving the way towards sustainable practises can make for better investments, keeping their impact on the environment in mind.

  5. Tech Advancements

    Companies that are ready to invest in technology that helps them become more efficient and reduce their environmental impact are good companies to invest in.

Company Rankings in 2024

Listed below are the companies with the top 5 power stocks in India

  1. NTPC

    NTPC or National Thermal Power Corporation Ltd, together with its subsidiaries & joint ventures focuses on the generation and sale of bulk power to state power utilities.

    • The company has been maintaining a healthy dividend payout of 39.5%
    • Q4 FY24 saw sales of ₹47,622 Crores, up YoY from ₹44,253 Crores
    • Operating profit for Q4 FY24 stood at ₹13,984 Crores up YoY from ₹11,942 Crores
  2. Power Grid Corporation of India Ltd

    Power Grid Corporation is India’s largest electric power transmission company. The main aim of the company is to move blocks of power from the central agencies having surplus power to load centres across regions.

    • The company has been maintaining a healthy dividend payout of 65.0%
    • The company’s stock is also providing a good dividend yield of 3.36%.
  3. Adani Green Energy Ltd

    Adani Green Energy, with its subsidiaries, is involved in the business of renewable power generation, particularly renewable power generation.

    • The company has delivered good profit growth of 36.1% CAGR in the last 5 years
    • The company’s debtor days have also improved considerably from 95.1 to 53.1 days.
  4. Adani Power Limited

    Adani Power is in the business of providing coal-based electric power generation and is also involved in coal trading. With around 98% of its revenue being generated from the power supply, the company in the first half of FY2024 saw:

    • Total continuing revenue growth of 26% to ₹23,767 Crore.
    • Higher operating capacity thanks to the commissioning of its Godda plant
    • Growth in demand and lower imported fuel prices.
  5. Tata Power Company Ltd:

    Engaged in the generation, transmission and distribution of electricity, the company also looks into mining and trading coal. In the first half of FY2024, the company had a capacity of 14,381 MW, which played a huge role in the Tata power share price.

Conclusion

When investors are looking to invest in power stocks in India, it is important to keep every factor in mind. This helps investors make an informed choice, leading to potential gains and profits in the future. With the concept of fundamental analysis coming to the fore, choosing the right power stock has become easier.

Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.

This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.

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Frequently Asked Questions

What are the key fundamental metrics used to evaluate power companies in India?

Answer Field

The main fundamental elements of evaluating power companies are of two types:

●       Qualitative: The qualitative aspect focuses on analysing unquantifiable factors like brand value, management experience and efficiency, employee satisfaction, customer feedback etc. of a company to determine its stock value.

●       Quantitative: Quantitative analysis studies the numerical factors like quantitative data, statistics or figures, to gauge the value of a company’s stock. 

How do the top 5 power companies in India rank in terms of financial stability and performance?

Answer Field

Below is a rank list of the top 5 power companies in India in terms of financial stability and performance:

a.      NTPC

❖     The company has been maintaining a healthy dividend payout of 39.5%

❖     Q4 FY24 saw sales of ₹47,622 Crores, up YoY from ₹44,253 Crores

❖     Operating profit for Q4 FY24 stood at ₹13,984 Crores up YoY from ₹11,942 Crores

 

b.      Power Grid Corporation of India Ltd.

❖     The company has been maintaining a healthy dividend payout of 65.0%

❖     The company’s stock is also providing a good dividend yield of 3.36%.

 

c.       Adani Green Energy Ltd.

❖     The company has delivered good profit growth of 36.1% CAGR in the last 5 years

❖     The company’s debtor days have also improved considerably from 95.1 to 53.1 days.

 

d.      Adani Power:

❖     H1 FY24 total continuing revenue growth of 26% to ₹23,767 Crore.

❖     H1 FY24 saw higher operating capacity thanks to the commissioning of its Godda plant

❖     H1 FY24 also saw growth in demand and lower imported fuel prices.

 

e.      Tata Power Company Ltd.

❖     Q4 FY24 sales went up ₹15,847 Crore YoY from ₹12,454 Crore.

❖     Net profit went up to ₹1046 Crore YoY from ₹939 Crore.

What factors contribute to the success and strong fundamentals of these power companies?

Answer Field

Some of the main factors that influence the fundamentals of the power companies include:

●       The energy mix the company is willing to establish and how soon it plans on transitioning to cleaner sources of renewable power.

●       The company’s market position is another factor that influences its fundamentals. This includes its market share, growth prospects and the advantage it has over other power companies.

●       When regulatory policies are in favour of the company’s growth, particularly policies that focus on renewable energy sources, a company’s fundamentals become stronger

●       Companies that consider the environmental impact and the carbon footprint it is leaving behind and work towards sustainable practises also establish strong fundamentals

Companies that are ready to invest in technology that helps them become more efficient and reduce their environmental impact pave a path to success and stronger fundamentals

How have these companies managed regulatory challenges and market fluctuations in the power sector?

Answer Field

Companies should have a multifaceted approach when managing regulatory challenges and market fluctuations in the power sector. Some of these approaches include:

●       Companies are safe from short-term market fluctuations when they enter into long-term contracts to buy/sell electricity at fixed prices as there is more stability.

●       Mixing fuel sources like solar, wind, and hydro sources companies reduce dependence on imported fuel sources, thus reducing their vulnerability to fluctuations.

●       The optimum use of energy storage technologies, like batteries helps capture price differentials during high and low-demand periods

What are the growth prospects and investment potential of the top 5 power companies in India?

Answer Field

India's power sector, according to an announcement by the Ministry of Power, will see robust growth in FY2025. The power sector also expects a surge in demand by 6%. The first two months of FY25 also saw a growth of 10 per cent in the power sector. 

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