As the Central government enhances its transmission capital expenditure (capex) estimate to an ambitious $110 billion, international brokerage firm Goldman Sachs has identified a promising opportunity for state-owned Power Grid Corporation of India Limited. The firm believes that this substantial increase in capex will position Power Grid as a key beneficiary in the evolving energy landscape of India, underpinned by a projected compound annual growth rate (CAGR) of eight percent in transformation capacity.
Positive Rating for Power Grid
Goldman Sachs has reaffirmed its ‘buy’ rating on Power Grid, setting a target price of ₹370 per share. This recommendation comes as part of a broader analysis initiated on April 18, 2024, covering Power Grid alongside two other transmission players in the market. The brokerage noted that Power Grid stands out as the largest transmission asset developer in India, making it a critical player in the anticipated grid capex supercycle.
Strategic Funding Capacity
The brokerage’s assessment indicates that Power Grid is well-positioned to fund approximately 30 percent of India’s grid capex estimates from the financial years 2024 to 2032. Remarkably, the company is expected to maintain its current dividend payout while actively engaging in these funding activities. This financial strategy underscores Power Grid’s robust balance sheet and operational efficiency, making it an attractive investment option amid the ongoing infrastructure expansion.
Growth Drivers in Power Demand
Analysts at Goldman Sachs project that by 2035, one-third of India’s power demand growth could arise from sectors experiencing significant transformations, including data centers and electric vehicle (EV) adoption. Data center capacity is forecasted to grow at an impressive annual rate of 30 percent, while the adoption of electric vehicles is anticipated to accelerate across various vehicle categories. These trends highlight the increasing demand for reliable and efficient power transmission infrastructure, which Power Grid is poised to support.
Opportunities in the Transmission Segment
The report also emphasises the expansive opportunities within the transmission segment, where Power Grid is expected to tap into an estimated ₹2 lakh crore capex potential. This substantial market opportunity is likely to enhance Power Grid’s growth prospects significantly, allowing the company to strengthen its position in India’s evolving energy sector.
Conclusion
In conclusion, Goldman Sachs’ optimistic outlook for Power Grid is supported by the Central government’s strategic increase in transmission capex and the anticipated growth in power demand from key sectors. As Power Grid continues to play a pivotal role in the nation’s energy infrastructure development, investors are likely to benefit from its robust growth trajectory and strong financial fundamentals. The combination of a solid dividend policy and significant market opportunities positions Power Grid as a compelling investment choice within the Indian power sector.