IIFL initiates coverage on 3 RE stocks; Tata Power top pick

Domestic brokerage firm IIFL Capital continues to remain positive on power transition stocks ahead of the approaching summer season, which is yet to reach its peak. IIFL is inclined towards the renewable theme as it anticipates energy transition to quadruple the profit pool for renewable developers.

The brokerage is swearing by the factors like shifting profits from government, railways and primary energy suppliers to developers; value capture by backward integration; and creation of new profit pools by forward integration into storage, green hydrogen & other adjacencies.

While execution will remain challenging and ‘Solar Maximum’ will constrain the pace of supply addition, we believe ‘integrated developers’, that can tap into adjacencies and deploy large balance sheets, have the right to win this phase of transition, said IIFL Capital.

IIFL Capital expects RE execution to generally become more challenging, given the increasing complexity and expanding scale of projects. However, most critical bottlenecks and right to win for RE capacity addition will be adequate and timely transmission access enabling expedited execution; large-scale low-cost energy storage to continue RE capacity addition; and larger balance sheet deployment for achieving full-stack vertical integration, as the energy transition deepens.

By enhancing the value capture for RE developers in two ways: shifting profits from government, railways and coal miners to RE developers in the first two phases of renewable transition, and value capture from equipment manufacturers by vertical integration in the upcoming third and fourth phases of transition, the brokerage noted.

It has maintained ‘buy’ rating on Tata Power, with a target price of Rs 435 as its top pick. Besides this, it has initiated coverage on Acme Solar with a ‘buy’ and a target price (TP) of Rs 290 per share. It has initiated coverage on NTPC Green Energy with an ‘add’ rating (TP: Rs 105) and JSW Energy with ‘reduce’ rating (TP: 495).