India’s power sector is witnessing a structural supply deficit after more than a decade as electricity demand outstrips projections. However, the Reserve Bank of India’s recent 25 basis points repo rate hike to 5.5 per cent and shift to ‘calibrated tightening’ have created financing headwinds for utilities amid a massive capex cycle.
According to a JM Financial note, leading utilities will expand their generation asset base by over 50 per cent by 2030, entailing ₹12 lakh crore in FY26–29 capex and lifting sector-wide debt by 50 per cent from ₹8 lakh crore to ₹12 lakh crore.
Assessing rate-hike vulnerabilities, it noted that the utilities most exposed to rising interest rates are not necessarily those with the highest debt. Instead, it said that the real risk lies in the combination of floating-rate debt, weak interest coverage, high leverage and an aggressive expansion pipeline.
“In view of the recent corrections and evolving sector dynamics, we now prefer Adani Energy, Adani Power, Juniper Green, JSW Energy, Power Grid,” the brokerage said.
JSW Energy
JSW Energy appears particularly sensitive, with 75 per cent floating-rate debt and an estimated 28.1 per cent — or ₹573.2 crore — profit before tax impact from a 100 basis points rate increase.
The brokerage said, “Substantial capacity under construction and a sizable locked-in storage portfolio support a multi-year expansion opportunity, although leverage and financing costs could absorb a meaningful share of the value created”.
For NTPC, which carries a 5.98 per cent borrowing cost despite 63 per cent floating-rate exposure, it noted, “strong interest coverage, the lowest borrowing costs and a large operating asset base provide a vital buffer against rising rates while maintaining an attractive valuation”.
However, near-term growth constraints prompted a multiple cut from 2.3x to 2x on regulated equity.
Tata Power Company
On Tata Power, facing a moderate 6.9 per cent profit before tax impact from a 100 basis points hike, JM Financial noted that “the recent drivers from the Odisha turnaround and solar PV manufacturing have peaked, though the overall risk from the interest rate cycle remains moderate”, trimming multiples for both segments.
Suzlon Energy, IEX, Coal India
Meanwhile, net-cash firms Suzlon Energy, Indian Energy Exchange (IEX), and Coal India are least exposed to external borrowing costs.
On Suzlon, JM Financial shifted to EV/EBITDA valuation over post-FY28 tax uncertainty and cut its multiple from 17x to 13x on growth challenges from FY28 onwards, noting, “Given its net cash position, direct interest rate sensitivity is not the primary concern”.
For IEX, it cut the multiple from 22x to 18x over regulatory overhang and delayed Day-Ahead Market dilution by a year, as market coupling has not progressed so far and it is unlikely to be implemented by FY28.
On Coal India, it highlighted structural growth concerns, stating, “We expect low-to-moderate growth for Coal India. Furthermore, it has a very low direct interest rate risk”.
Target and Ratings
JM Financial reiterated its ‘Buy’ rating on JSW Energy with a revised target price of ₹599, alongside ‘Buy’ calls on NTPC at ₹371, Tata Power at ₹406, and Suzlon Energy at ₹46.
It maintained ‘Add’ on Coal India at a ₹458 target and IEX at ₹117.
Disclaimer: This article has been written by the author, who is not a SEBI-registered research analyst or investment adviser. The recommendations, suggestions, views and opinions expressed by experts and brokerages are their own and do not represent the views of ETEnergyWorld. This article should not be construed as investment advice.
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