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Balkrishna Industries

In a highly polarized world, neutrality is a goal.

Achieving carbon neutrality is indeed a vital goal for environmental sustenance.

And thus, instead of trying to find fault with ‘rich nations’ who are often held responsible for climate change; India is working on its ambitious green energy programme.

India generates 40% of its energy from renewable sources. The country aims to increase its contribution to 50% by 2030.

As of now, India’s total installed power generation capacity is 392 Gigawatt (GW), of which 157 GW is renewable while the target is to ramp it up to 500 GW by 2030. 

Solar PowerAt present, 63 GW of renewable energy capacities are under construction. Even if we assume that the finances for the same have been secured or have been earmarked already, the capital is yet to be sourced to build 300 GW of renewable capacity.

A back of the envelope calculation suggests that the total capital required to install the remaining 300 GW capacities would be approximately Rs 12-15 lakh crore—Rs 4,000 crore to Rs 5,000 crore per GW. This translates to an annual funding requirement of over Rs 1 lakh crore for the next 9 years.

Which companies are likely to spearhead India’s green energy initiatives?

Companies such as Adani Green Energy, Tata Power, late entrant Reliance Industries, JSW Energy and state-owned NTPC are likely to make the most of India’s green energy opportunity.

Lately, our research team has initiated coverage on Adani Group companies. All companies under our coverage—Adani Green Energy, Adani Transmission and Adani Total Gas are likely to benefit immensely as India is working unflaggingly towards achieving its climate change commitments. 

You see, polarized valuations aren’t always red flags; they could also mean enviable growth is knocking on the door!

Will green energy offer green passage of growth to lenders?

The country’s largest lender, SBI, wants to go carbon-neutral by 2030 and has already devised a strategy to accelerate green lending based on ESG (Environmental Social and Governance) scores. ESG is now an integral part of SBI’s decision making process.

Renewable energy and clean mobility remain some of its key focus areas.  According to media reports, it aims to incentivize borrowers having a high ESG score. The current renewable energy exposure of SBI is Rs 33,000 crore.

The private sector lenders have jumped into the fray too. Axis Bank has chalked out renewable energy specific targets. The country’s third largest private sector bank has guided for a disbursement of Rs 30,000 crore over the next 5 years.

On the other hand, state-owned companies focused on the power sector are also gearing up to increase their renewable energy disbursements.

Out of Rs 3.71 lakh crore of gross loan assets of Power Finance Corporation, 10% belong to the renewable energy segment. It recently raised Euro 300 million at a coupon rate of 1.84%. That said, the power distribution segment still accounts for 61% of its book.

Rural Electrification Corporation’s total book size is Rs 3.87 lakh crore. Although renewable energy loans are just 3% of its book as of now, their share is growing gradually.

Both these companies are trading below their book value and have a high dividend yield of over 8% at present. Nonetheless, the low valuations reflect the ESG risk they run for lending to companies belonging to the non-renewable power value-chain. And the stress in the power distribution segment is another sentiment dampener.

In summary

India has committed to becoming emission-neutral by 2070 and working aggressively towards adding more renewable capacities. However, securing finance for the incremental 300 GW still remains a grey area. Besides, taking loans from banks and dedicated NBFCs, Renewable Energy companies will have to look for newer means such as Infrastructure Investment Trust (InvITs).

To maintain strong balance sheets and remain lean, companies might have to also attract equity infusion as well.

But the stock market is a funny place. Here analysts often go ga-ga over loss-making unicorns, having no identified path to profit and look upon companies having envious record of execution with suspicion.

For developed countries, the best way to compensate developing and poor nations for climate change is to support their green energy initiatives.

 Is the world listening?

You may also like to read: Aegis Logistics: A potential beneficiary of India’s energy transition?

Disclaimer: The blog is for information purposes only and anything mentioned herein shouldn’t be construed as a fundamental reason to buy/hold/sell any stock or a mutual fund. Furthermore, the information provided in the blog and observations made therefrom shouldn’t be treated as the extension of recommendations made on the other properties of Ventura Securities. If you follow any research recommendations made by our fundamental or technical experts, you should also read associated risk factors and disclaimers.

We strongly suggest you to consult your financial advisor before taking any decision pertaining to your finances. Asset allocation becomes extremely relevant.

We, Ventura Securities Ltd, (SEBI Registration Number INH000001634) its Analysts & Associates with regard to blog article hereby solemnly declare & disclose that:

We do not have any financial interest of any nature in the company. We do not individually or collectively hold 1% or more of the securities of the company. We do not have any other material conflict of interest in the company. We do not act as a market maker in securities of the company. We do not have any directorships or other material relationships with the company. We do not have any personal interests in the securities of the company. We do not have any past significant relationships with the company such as Investment Banking or other advisory assignments or intermediary relationships. We are not responsible for the risk associated with the investment/disinvestment decision made on the basis of this blog article.

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