Deutsche Bank says Indian power sector to see earnings recovery, albeit delayed

 Deutsche Bank has raised the earnings estimate for Power Grid Corporation, Tata Power  and NHPC as prospects of the power sector improve, but has reduced the estimate for Jaiprakash Power Ventures. 

In a report dated December 7, Deutsche Bank said that hurdles in the power sector are easing and will result in strong earnings recovery, albeit delayed. The valuations of these utilities, which is at a 30-40% discount to historical mean, could revert sooner, the report said. 

Deutsche Bank's top picks from the sector are - NTPC JSW Energy, Power Grid Corporation and CESC. 

"We believe that the hurdles facing the sector are being addressed. The key ones are domestic coal availability (i.e., lower cost), interest rate decline and SEBs' financial health being restored, which will result in strong earnings recovery, albeit delayed," the report said. 

It said that the increase in earnings estimate for Power Grid was due to higher operating revenues. While the reduction in Jaiprakash Power Ventures target price to Rs 8 per share from Rs 9, post hydro assets sale was largely due to the earnings cut on reduced volumes from the thermal power business.