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Shares of Power Grid Corp of India and NTPC are leading gains in the Nifty 50 stocks in Tuesday afternoon trade. The stocks gained about 3 percent each after the companies indicated increased intensity in their capital expenditure (capex).

Total works in hand at Power Grid crossed Rs 1 lakh crore for the first time in several years. The company bagged several large projects in April-July this year. Enthused by new order inflows, the company has raised its capex target for the current fiscal. It also expects higher capitalisation of assets in the next two fiscals vis-à-vis FY25. Capital outlay till 2032 is pegged at Rs 2.07 lakh crore.

NTPC plans to add as much as 26,000 megawatts (MW) of India’s 80,000 MW capacity addition target in the next 10 years. The 21,029 MW of under construction projects includes a mix of coal, hydro and renewable energy power plants. In the next three years, it plans to add 7,000 MW of conventional power plants and 16,000 MW of renewable energy capacities. Additionally, the company is looking to enter nuclear power generation. It signed a joint venture agreement with Nuclear Power Corporation of India and is actively considering the award of constructing a 2,800 MW nuclear power plant.

The capacity addition plans indicate the beginning of a new investment cycle in the power sector spanning both transmission and power generation segments. A host of engineering procurement construction (EPC) and equipment suppliers depend on Power Grid and NTPC for orders. The heightened capex improves the business outlook for EPC and power equipment companies.

Apart from 9,560 MW of thermal power projects under construction, NTPC plans 15,200 MW of projects in the next two fiscal years. According to analysts, Power Grid has also begun tendering for equipment orders for large projects it won recently. The increased ordering activity is also visible in the renewable energy sector. The order book at Suzlon, a large supplier of wind energy equipment, rose to record levels as our Chart of the Day highlights.

“NTPC, which is largely considered a low-growth, dividend-yield stock, has seen a remarkable change in perception. Today, the market is valuing its growth in light of strong capex, improving profitability, a good pipeline of projects, and a healthy growth in power generation and demand,” writes Jitendra Kumar Gupta on NTPC.

The capex and new projects provide growth visibility to NTPC and Power Grid. However, investors should note that transmission and conventional power generation plants are long gestation projects. It takes a minimum of 2-3 years to build a thermal power plant or a large inter-state transmission project. In the meantime, earnings accretion from new projects may not be significant.

“Despite factoring in capex of ~Rs 25,000 crore-plus each in FY25E and FY26E, we find Power Grid’s earnings per share CAGR to be only 6 percent over FY24–27E,” warn analysts at Nuvama Institutional Equities citing 2-5 year construction timelines of large projects. CAGR is compound annual growth rate. What is more important for investors is to match their return expectations with the earnings trajectory of power companies.

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Technical Picks: GAIL, BEL, Zaggle Prepaid Ocean, and ABFRL (These are published every trading day before markets open and can be read on the app).

R Sree Ram
Moneycontrol Pro