Goldman Sachs initiates coverage on three power transmission stocks; Do you own?

Goldman Sachs initiates coverage on three power transmission stocks; Do you own?

Shares of Power Grid and Hitachi Energy India gained up to 6% in Monday’s trade after global brokerage Goldman Sachs initiated coverage on two power transmission stocks with a ‘Buy’ rating and issued a ‘Sell’ rating on Schneider Electric Infrastructure.

Power Grid is among Goldman Sachs’ top pick with a 12-month target price of ₹355 per share. This implies a potential upside of nearly 30% from the stock’s closing levels on Tuesday.

It believes India’s largest transmission asset developer is a play on grid capex super cycle with large balance sheet. The company has the ability to fund 30% of the country’s financial year 2024 to 2032 estimates grid capex while maintaining current dividend payout, the foreign brokerage said in a note.

Additionally, Power Grid has structural funding advantage and consistency of core regulated earnings, as per a report by Goldman Sachs.

For Hitachi Energy India, the brokerage has a 12-month target price of ₹8,250 per share, as it likes the company among the grid equipment manufacturers.

The company benefits from large total addressable market (TAM) and global technology leadership. It also has indigenous manufacturing capability in a globally supply constrained environment, Goldman Sachs noted.

The brokerage also said that Hitachi Energy India is positioning as a potential China+1 beneficiary as global supply chains re-align.

However, analysts at the brokerage firm believe that the risk-reward ratio offered by shares of Schneider Electric Infrastructure at its current market price is “unfavourable”.

Goldman Sachs has a price target of ₹470 on the stock. The price target implies a potential downside of 41% from Tuesday’s closing levels.

Schneider Electric Infrastructure shares have rallied 375% over the last 12 months and has gained over 40% so far this year.

Analysing India’s power capex requirements, Goldman Sachs in a note said the transmission capex is expected to have the second largest share of over $500 billion of total energy transition capex requirement of $1.7 trillion over the next 25 years.

They also said that the government is providing financial support worth $270 billion for energy transition by waiving central grid charges for renewables.

The support has helped India reduce the levelised cost of round-the-clock renewable and green hydrogen by 22% and 30%, respectively, the brokerage noted.