According to a recent report by Kotak Institutional Equities, the market is pricing two major public sector undertakings in the power sector differently, raising questions about their valuation theses. BHEL has surged 64% over the last six months to trade at ₹431, while NTPC, India's largest power generation company, has declined 12% despite both companies being part of the Nifty Energy index. The Nifty Energy index has gained 3% compared to the Nifty 50's 1.02% decline, highlighting the divergent performance between these power sector stocks.
As reported by Kotak Institutional Equities, BHEL's current market cap of ₹1.5 trillion is significantly higher than its likely thermal equipment undiscounted profit pool of ₹50,000 crore to ₹1 trillion. The report notes that this valuation assumes 100 GW of new thermal capacity addition at ₹10,000 crore per GW with 5-10% profit after tax margin. Around 75% of BHEL's market cap depends on coal plant orders, with the company deriving 75% of revenue and 60% of profit from the power business. The thermal equipment business alone represents ₹1.13 trillion in market cap terms.
According to the Kotak Institutional Equities report, NTPC's current market price implies 40 GW of incremental thermal capacity addition in perpetuity. The Central Electricity Authority projects a cumulative 86 GW of thermal capacity addition over FY27-36, with some capacity coming from the private sector. The report suggests that NTPC's thermal tariff of ₹4.80 per unit is higher than solar plus storage at ₹5.4, while plain solar costs ₹2.30-3 per unit. However, the gap between solar plus storage and thermal tariff is narrowing, potentially reducing coal plant demand and slowing NTPC's earnings growth.
As reported by Kotak Institutional Equities, the valuation gap reflects different market perceptions about power sector growth. The market is worried that NTPC will not add to its future capacity, while BHEL is valued as though power companies will continue building several times the capacity that the government projects. The report notes that power companies are asking fundamental questions about electricity pricing and demand, with the competitive landscape between coal-fired electricity and solar energy becoming increasingly important. BHEL's market cap to 20-year aggregate free cash flows ratio stands at 7x, but for 2026, the company recorded ₹5,300 crore in free cash flows, bringing the market cap to FCF ratio to 29x.
