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00:00Hello and welcome. You're watching the small and mid-cap show here on NDTV Profit. I'm
00:15Harsh Saita. With me is Mahima Vachrajani. And let me bring on board the first guest
00:21for us. We have Mr. Rupesh Sankhe, who's the Vice President of Research at Ellara Capital,
00:27to talk to us about the power sector, to break this down, because this sector is definitely
00:31in focus. Plenty happening. We've seen lots of action in lots of stocks. NTPC has been
00:37a multi-bagger, has been a doubler. We've seen BHEL be a multi-bagger as well on the
00:42thermal side of things. Plenty happening even on the renewable side of things. Welcome Rupesh.
00:48It's going to be a fun chat.
00:49Yeah, good morning. If you look at the previous cycle from 2005-2009, we have seen a similar
00:56kind of growth in terms of power demand. And then from 2012 to 2018, the deficit has come
01:06down significantly and the demand was also slightly subdued. And the ROE has seen some
01:11sort of a contraction there. So the valuation also corrected during that phase. Now again,
01:17we are back to the 2005-2010 kind of a cycle. Deficit is now close to 0.6%. And most of these
01:25companies are entering into renewable energy space. So there is a better capital allocation
01:30going ahead and a huge opportunity in terms of per capita consumption, which is going up
01:35significantly. And all these are benefiting to the sector in terms of demand supply dynamics
01:44is in favor of developers, as well as the policy reform, which has happened in terms
01:49of T&D capex, improving state electricity, both financials that are going well for the
01:57sector. So next 7-8 years, we are very positive in terms of fundamentals, capex on the power
02:04side. But however, recently we have seen valuation have seen a significant run-up from let's
02:11say 1.5X price to book value is now close to 4-5X price to book value. To that extent,
02:18I think many of the companies have risen near the earning visibility or growth. But beyond
02:253-4 years, we can see more upside there in the power companies who are aligning their
02:31business model toward green energy transition from hydro storage, battery storage, and other
02:37renewable energy. So those companies will still continue to get benefit from these
02:42reforms and opportunities which are there in the policy.
02:45Understood. Well, Rupesh Mahima also joining in. I want to understand that since you mentioned
02:50that the valuations for these power companies have gone a bit higher. But going forward,
02:55you expect renewable energy companies to benefit. Can you just tell us as to in those
03:01renewable energy segment, where are you seeing value going forward? Is it the large cap,
03:06mid-cap, small cap? And which are these companies that you see is going to benefit
03:10out of renewable energy? Yeah, definitely companies having a strong balance sheet,
03:16a strong execution capabilities will get benefit out of that. So in the large cap,
03:21at this valuation, we are positive on NTPC. They are entering into renewable energy and
03:27they have planned to take from 3.5 gigawatt currently to close to 60 gigawatt by 2032.
03:33Also, they have recently signed MOEs with respect to pump hydro storage. Again,
03:39on the coal side, they are having close to 15 gigawatt of coal project under tendering stage.
03:46Already 9 gigawatt is under construction stage. That will add to their regulated equity.
03:51And also, if you take out all these verticals business value, I think these stocks can give
04:01you around 30-40% kind of seizure growth, a price appreciation growth from the current level
04:07for the next four to five years. Having said that, if you look at the mid-cap companies like
04:14CEAC, Calcutta Electricity Company, their valuation is a significant discount to other
04:20private players or regulated players. Earlier, they were not much focused on the renewable
04:25energy side, but they have announced 3 gigawatt of capacity addition on the renewable energy side.
04:31The process has already started, like the land acquisition, all those things.
04:35They have significant operating cash flows from the regulated business, which they can
04:39deploy in the renewable energy. And the valuation is pretty low as compared to other players.
04:44So, CEAC can outperform from the current levels versus other companies. In the small gap,
04:50we are also positive on the two hydro companies where we see significant growth opportunities,
04:56like NHPCA and NGVN. These two stocks will do well because we see a 4X, 5X kind of growth in
05:04their regulated equity in their portfolio in the coming years. That will drive their earning
05:10visibility as well as they will command higher premium from the current levels. So, we are
05:15positive on these four companies, NTPCA, CEAC, NHPCA and NGVN at this valuation.
05:21Thanks for that, Rupesh. But before I go and question you on some of those picks,
05:26I want to try and understand what are the ROCs, ROEs, what are the return ratios,
05:32especially on the renewable side of things, because you are seeing some bit of competition
05:37on pricing as well. So, I want to try and understand what kind of return ratios one or
05:42what kind of return ratios are you pencilling in overall?
05:47Yeah, it's a good question because earlier model cost was very high, competition was very high.
05:53So, tariff discount was close to 2.6 rupees for solar and for the hybrid, it was close to 2.9.
05:59Now, in the last two years, we have seen model cost has come down significantly.
06:05And the tariff, discount tariff in the recent period is the same level what we have seen
06:11few years back. So, in that way, I think companies with a strong balance sheet,
06:17which can raise funds at a lower cost, can benefit out of that. So, if you look at the
06:24companies without presence in the value chain, like a solar EPC or modern manufacturing,
06:30their ROE will come down to as low as 11 to 12 percent. But some companies with the solar EPC,
06:38integrated solar EPC players, with a better cost of funds for their renewable
06:47project, I think those companies will enjoy close to 14 percent kind of ROE. So, for NTPC,
06:53NHPC, we are pencilling 13 percent kind of ROE for their renewable energy. But for other private
07:00players, we are pencilling close to 11 to 11.5 percent kind of ROE.
07:05Understood, understood. Rupesh, you know, there's a very positive outlook when it comes to,
07:11you know, the renewable energy sector. But what about the thermal capacities? I mean,
07:16do you think that CAPEX in the thermal segment is picking up? And I mean, if yes,
07:22which are these companies then? Absolutely. The earlier plan was only to add 30 gigawatt.
07:29And based on new electricity policy that has тАУ a plan that has announced on the generation side,
07:36we are now expecting close to 90 gigawatt kind of capacity addition for next seven to eight years.
07:44Just because demand is growing faster and renewable energy is not keeping pace in that
07:50demand. So, that is why we need a coal-based generation capacity in the next seven to eight
07:55years. And ordering has already started. Tendering close to 15, 20 gigawatts in the
08:02tendering stage. So, clear benefit is for NTPC because none other private players are entering
08:10into this segment. But NTPC has shown interest in this segment and they will get benefit out of that.
08:19Other value companies like BHL is getting ordering first there. But I think one segment is
08:25one companies clearly benefit from this new coal tendering is the NTPC.
08:32Rupesh, sorry to interject. I want to try and understand just from a scale perspective,
08:38right? So, NTPC may be switching on some of its older plants with which it had shut down.
08:44How does that help the numbers for NTPC? Because when I'm looking at the price-to-earnings ratio,
08:49it's significantly higher than the five-year average. So, I want to try and understand,
08:53you've picked NTPC as one of your top picks. Is this the lever you're banking on? Is renewables
08:58the lever you're banking on both? And what about the price-to-earnings adjustments?
09:03I apologize again for interjecting.
09:06See, definitely. See, out of 70 gigawatt of capacity, close to 10 gigawatt capacity is
09:14more than 25. But if you look at the efficiencies of this plant, it's like very good in terms of
09:21PLF and the special heat rate they're maintaining. I think just because the PPL is getting expiry,
09:31we don't see that this plant will not run for a longer. We have many cases, many plants which
09:37are there in India, which are more than 40 years, 45 years old, is running at a very,
09:43very efficient lead. So, I think the demand supply mismatch is there for the next three,
09:49four years. And this 10 gigawatt capacity is getting expired. I think there is fair chances
09:54that this capacity will run on the budget basis or existing discount will sign the fresh PPA for
10:02this plant. So, we don't see much risk in this more than 25 years old power plant.
10:12At the same time, now if you look at the target, they're entering to renewable energy,
10:18pump hydro storage, also on the thermal side. So, equal contribution is coming from these new
10:24initiatives by 2030. As of now, 85% value is coming from their existing thermal asset. But
10:32going ahead in next seven to eight years, you will see 50% value will come from the new energy
10:38vertical, like renewable energy, pump hydro storage. Understood. Well, just one last question
10:46to you. In terms of power tariffs, which have hiked in May, once the monsoon sets in, what are
10:52the kind of trends that you're expecting in power tariffs going forward in FY25? Yeah. So, power
10:59tariffs will come down mainly because of a change in variable costs. Now the coal prices have come
11:06down. That will have impact on the variable costs, which they adjust on a monthly or quarterly basis.
11:12Secondly, more and more discount companies are buying renewable energy in their portfolio,
11:17which is at very low cost as compared to a conventional power energy. So, because of these
11:23two factors, we see that power costs will come down drastically in the next four to five years,
11:29and that will have a positive impact on the state electricity board in terms of turning their
11:35financial also. So, it's a good question that now the tariff, which looks very high, and the
11:40SEPs are reporting losses. Four, five years down the line, you will see a significant drop in the
11:46retail tariff or overall tariff because of renewable energy at a low cost, and because of
11:53losses coming down because of T&D investment, which is happening. So, that loss is also coming
11:57down. That will help the all-state electricity board to turn into positive, profitable, and that
12:03will also be positive for the sector as a whole. Right, right. Well, Rupesh, thank you so much for
12:07sharing those insights on power sector, but with that, we're completely out of time. One stock that
12:12is in focus is KPI Green Energy. Its subsidiary, Sundrops Energy, are backed a solar order win
12:19of 26.1 megawatt, and to discuss about how the order will pan out to be, what are the order
12:24wins look like, we have with us Dr. Farooq G. Patel, CMD of KP Group, who joins us now.
12:31Welcome to the show, sir. My first question to you is that, you know, with this order win,
12:37I want to understand that where does your order book stand at when it comes to, you know, overall
12:43for KPI Green Energy, total order book, and what is the bifurcation for this order book?
12:50We have got this order, very retail order, so margin is quite sufficient for the company,
12:57and in this, from April till now, we have got the 100 megawatt order all together,
13:03including this 26.15, and the margin is, as compared to the big order, is the margin is
13:12very good in the retail order also, I can say, which you will see in this quarter result.
13:20Understood. Dr. Farooq, can you also guide us as to, you know, what kind of revenues are you
13:24expecting from this order win, and how quickly will you execute this order? See, in this
13:33order, you can say roughly, say 100 CR revenue we will get from this order, and the all together
13:42in the KT of KPI Green, more than the 2100 crores order in hand till today. So, this will be
13:51converted within six months, this order will be converted within the six months or nine months,
13:56as the project going to execute by then. Understood. And Dr. Farooq, with this order
14:04win, I want to understand the breakup between your order book, you know, in terms of CPP,
14:08IPP, and your hybrid projects. We have all together, we can say hybrid in this year,
14:17we got the 20 plus order in CPP and the government of Gujarat, GVNL order, all together in all
14:27company 515 megawatt in the, you can say, 0.5 gigawatt, we have order from the GVNL, including
14:37CPP and IPP. Same thing, the CPP order of this year, last year plus this year is 100 megawatt
14:49plus new order. So, we are reaching to the 2100 crore rupees, and the IPP revenue will increase
15:03in this year also. So, we will do much better than the last year that we can say.
15:11Okay. Thank you so much, sir, for giving us your time and for breaking that specific order win down
15:17for us and our viewers. But let's switch focus. Other housing finance also in focus, the PM
15:25announced 4 crore houses for the rural and the poor and the economically weaker sections.
15:32And we had a chance or we have a chance to speak with Rishi Anand, the MD, CEO of the company.
15:39Welcome, firstly, Mr. Anand to NDTV Profit. I want to first quickly quiz you on what component or
15:46what part of your disbursements last year or the year prior were advantaged due to this scheme. So,
15:54what component of your disbursements came from this particular scheme,
15:57just want to try and understand the impact. That's right, Harsh. And as an indication,
16:04if I can tell you, year on year basis, anywhere between 3% to 4% of our total assets generated
16:09in the year, that is incremental disbursements. Subsidy has been received in those loans.
16:15And as you rightly indicated, any subsidy coming in towards the consumer
16:20and end user definitely helps improving the asset quality. And indicatively, if I can tell you,
16:26when March 22, when the scheme got closed, we received close to about 700 crores of interest
16:33subsidy out of a total disbursement of 7,000 crores. So, only in the last year, we had 10%,
16:38close to about 9% to 10% of subsidy received against the total disbursement,
16:42but on average, about 4% to 5%. Got it. But given the significant increase with regard to
16:50the plans, with regard to rural housing, do you expect this number to go up substantially
16:57going forward and maybe the next five years in Modi 3.0?
17:02So, last year was one up because the scheme got closed, but on average, as I indicated,
17:074% to 5% of interest subsidy against the total disbursement that we've done. Having said that,
17:14in the interim budget, the way the finance minister sounded, looks like the scheme should
17:19unfold in the larger scheme of things, more coverage should be given because it's popular
17:25scheme. So, if more coverage comes in, which effectively means more beneficiaries, more end
17:30users, which will enhance this percentage that we're talking about. Got it. And Mr. Anand,
17:36how large, just contextualize this for us, how large is this announcement if it were to translate
17:43to reality? How large is it, 4 crore houses versus the 3 to 4 odd crore that the government
17:49has done in the last 10 years? How large will this be for the housing sector in general,
17:55as well as housing financiers? If I remember right, Harsh, in the past scheme, it was close
18:03to about 3 crore houses. In the past, it was 3 crore houses out of which approximately 1.5
18:08crore houses have been commissioned. And when we talk about the Prime Minister Awas Yojana scheme
18:16under 3 crore houses, 4 crore houses, that's going to be announced, the way it looks. We
18:23forget the way the entire ecosystem gets affected. For example, it is not only the housing end user
18:30that is benefiting, it is the developers who are benefiting, it is the cement industry benefiting,
18:35it is creating so much of employment, it is the iron and steel industry that
18:39gets benefited. So, the entire ecosystem gets benefited out of it. So, putting a number,
18:43I don't think putting a number to it would be fair from a perspective of what can this
18:48generate to the economy. Right, okay. So, great context. Thank you so much, Mr. Anand, for
18:57setting that up for us. The stock of Aadhaar housing, can we pull that up if we can?
19:03Up now, almost 6% in trade, even though the component with regard to, at least the guidance
19:11given to us, the component with regard to this rural housing scheme or scheme for rural or the
19:19poor is largely a very small component of the overall disbursement, just about 4 to 5%. And
19:25that's expected to be or remain flat going forward as well. But the stock doing fairly well. With
19:31that, completely out of time on this edition of the Small and Mid-Cap Show from myself, Mahima,
19:36everyone who puts the show together. Thanks so much for watching. Stay tuned to NDTV Profit,
19:41more news on the other side.