JM Financial bullish on hydroelectric power stocks, initiates ‘Buy’ calls on SJVN and NHPC

The brokerage firm JM Financial has become bullish on India’s hydroelectric power (HEP) sector, stating that it is on the cusp of a structural upturn after decades of subdued performance.

JM Financial sees strong, consistent growth in renewables in India, led by a huge policy push and aggressive participation from the private sector. Renewable energy (RE) has grown at an unprecedented pace in India in the recent decade, the brokerage said.

Further, the ‘load-following ability’ of hydropower makes the industry a favourite, states the brokerage firm, as hydropower plants are observed quickly increasing and decreasing power generation as compared to those operating on coal or nuclear plants.

They bring valuable scale and flexibility to help electricity systems adjust quickly to sudden shifts in consumer demand and supply, noted the brokerage, reinstating that the ‘load-following ability’ of hydroelectric power necessitates increasing its share in the power generation mix.

This is done so that an increased amount of renewable energy can be integrated into the whole power system.

JM Financial has initiated ‘Buy’ calls on major hydroelectric power stocks, NHPC and SJVN, as they have strong core competencies.

The brokerage has set a fair value of Rs 50 per equity share on SJVN, translating to an upside of 26.6 per cent from the current market price, as it values the company on a discounted cash flow basis and expects the company to post strong growth in profitability.

The company has set a target of achieving 50,000 MW of installed capacity by the year 2040, with a contribution of 96 per cent from non-fossil fuels.

The brokerage has a Buy call on NHPC with a target price of Rs 55 per share on the stock, as it expects the company’s installed capacity to grow by 3,420 MW by FY26, while its revenue/EBITDA (earnings before interest, taxes, depreciation, and amortisation)/PAT (profit after tax) is set to grow at a compound annual growth rate (CAGR) of 17 per cent/21 per cent/9 per cent over FY23 to FY25.