top of page


1. Reliance Industries -

Reliance Industries is India’s largest company. The company is primarily engaged in the business of oil exploration, refining of petroleum and marketing & distribution of the same along with operations in petrochemicals. Reliance has diversified further by foraying into the retail, telecom and technology space with Reliance Retail and Reliance Jio, respectively. With all the businesses combined, the company pulled in revenues of over ₹6 trillion in FY20. The company derives majority of its cash flows from the oil businesses but has been proactive towards diversifying into businesses which can help the company achieve high growth and leverage its scale in the right order while allaying the risks associated with the oil business on the company.

The company has plans to achieve carbon neutrality by 2035 thereby focusing on diversifying across energy and other industries while continuing to invest in the oil business.

The company delivered a ROE at 10.6% for FY20 despite the pressure on oil companies globally affecting their margins. It has also successfully become net debt free which is positive as peers are usually more debt laden at the given scale. Reliance is among the most efficient among peers with the highest gross refining margins at $8.9/bbl (barrel) while the refining throughput stood at 70.9 MMT. The company has proven oil reserves of 13.24 MMT in India and abroad along with proven gas reserves of 92,771 MMSCM in India and abroad as of FY20.

The company currently has an EV/EBITDA of 17.1x and a P/E ratio of 34.7x which values the company fairly given the efficiency in oil business vs peers. The stock is expected to offer diverse growth opportunities over the long term. Along with this, the company has Reliance Jio and Reliance Retail among other digital investments which have been effectively contributing to the margins and growth of the company. Reliance has also successfully raised about ₹2 trillion by Jio stake sale, BP stake sale and a rights issue, which helped in making the company net debt free. The company also sold stake in Reliance Retail, raising an additional sum of ₹47,265 crore and has purchased Future Retail businesses. This has made the company the largest retailer in India which further adds value to the company’s leadership.



Oil and Natural Gas Corporation is the country’s largest oil exploration and production company. The company currently has operations across the world and is also engaged in some downstream activities of crude oil processing.

It produced 34.33 MMT of oil and 30.55 MMT of gas in FY19 and is vertically integrated with HPCL for downstream activities such as Refining and Marketing. The company has 1,853.23 MMTOE of reserves in oil and gas as of FY19 and generated revenues of ₹960 billion with net realization/bbl at ₹4,154/bbl.

On financials, the company has delivered a ROE of 14.9% for FY20 which was down because of the pressure on crude oil prices and the sharp drop witnessed in May 2020.

The reduction in oil seriously impacted the margins as well as sales which were down due to fall in demand. The company maintains relatively low debt levels with the debt equity ratio at 0.5x. The stock currently trades at a P/E of 14.9x and an EV/EBITDA of 5.3x indicating the company is cheaply valued. But at the same time, ONGC faces high amounts of risk from changing crude oil prices as volatility directly affects the profits of the company. Another factor to consider is the changes in regulations that can affect realisations. An investor must also consider its hedging gains and losses which will affect the bottomline in a big way.

3. Petronet LNG

Petronet LNG is primarily engaged in the business to develop, design, construct, own and operate Liquefied Natural Gas (LNG) import and regasification terminals in India. The company is jointly run by BPCL, GAIL, IOCL, and ONGC. Petronet LNG operates gasification plants in Dahej and Kochi with installed capacities of 17.5 MMTPA and 5 MMTPA respectively as of FY20.

The Dahej facility saw a capacity utilization of over 92% while the Kochi facility works at only 20% utilization due to insufficient gas transport network. The company has delivered a ROE of 24.3% which is higher than peers while the operating profit margin stood at 12.28% which is at the higher end of the industry average band. Additionally, it has a debt to equity ratio of 0.48x which indicates a lower-than-peer debt level. The company currently trades with a P/E of 14.5x and EV/EBITDA of 8.1x indicating that the stock trades at attractive valuations.


Of the power companies in India, NTPC is the largest thermal power producer in India (6th largest thermal power producer in the world). Coal based power generation contributes to 87.4% of total capacity. It has also diversified into hydro power, coal mining, power equipment manufacturing, oil and gas exploration, power trading and distribution.

NTPC Group has an installed capacity of 62,110 MW as of FY20 and NTPC Ltd achieved 100 percent plant load factor (PLF) on May 9, 2020 in three of its thermal power stations. The overall PLF stood at 55% for FY20 for thermal installations. The company generated ROE of 13.2% for FY20 while the ROIC has been more consistent being in the range of 18-20% over the last 5 years. The company currently trades at a P/E of 8.3x while EV/EBITDA stands at 6.9x, indicating the stock is fairly valued based on financials.

5. Torrent power

Torrent power is engaged in the business of generation, transmission and distribution of power through its network of thermal power plants. The Company has a total generation capacity of 3,879 MW of which it has three gas-based plants namely 1,147.5 MW SUGEN Mega Power Plant, 382.5 MW UNOSUGEN Power Plant and 1,200 MW DGEN Mega Power Plant. All three are regulated by Central Electricity Regulatory Commission which allows cost plus post-tax ROE of 15.5% as part of the regulated tariff. The operational renewable generation capacity of 787 MW of which 138 MW is Solar and 649 MW is Wind is tied up under long-term PPAs.

The Company is a licensed operator for electricity distribution in the cities of Ahmedabad, Gandhinagar, Surat and Dahej SEZ aggregating to 425 sq kms of area. It is also developing a state-of-the-art distribution network as a licensee in Dholera Special Investment Region (DSIR) spanning 920 sq kms area.

The company currently operates its plants at an average PLF of 60-70% range across all plants as of FY20 while the renewable segment operates at an average PLF of 15-20% for the same period. On financials, the company has delivered an operating profit margin at 27% which is much better than peers in the industry while delivering a ROE of 13.5% over the last 5 years. The company has been reducing its debt at a steady pace, bringing it down from 1.1x to 0.92x in the last 5 years. The company offers attractive valuations of 12.2x P/E ratio and a 7.5x EV/EBITDA ratio. Torrent Power has an OCF/NI ratio at 3.08x which is extremely robust.


Overview of the Power sector in India

India is the 3rd largest producer and consumer of power in the world with installed capacity of 370.49 GW (gigawatts) as of 2020. In renewable energy, India is ranked 4th in wind power and 5th in solar power capacity with renewable power capacity at 87.38 GW which is estimated to rise to 175 GW by 2022 and double its share in electricity capacity to 40% by 2030. Power is generated from 4 channels in India:

  • Thermal: This segment contributes to 62.4% of total power capacity and is drawn from Coal, Gas & Lignite and Diesel based power plants. Coal is the largest among these with installed capacity of 198.5 GW in 2020; Gas & Lignite plants have installed capacity of 24.99 GW as of 2020; Diesel is the smallest among the 3 with installed capacity of 0.5 GW as of 2020. The total capacity stands at 230.81 GW.

  • Renewables: This segment contributes to 23.4% of total installed power capacity. Of the renewables, Wind is the largest power generator at 37.75 GW followed by Solar power at 34.91 GW as of 2020.

  • Hydro: This segment contributes to 12.3% of total power capacity with power generating capacity of 45.69 GW as of 2020.

  • Nuclear: This is the smallest energy segment, contributing to 1.8% of all installed capacity in India at 6.78 GW as of 2020.


Different parts of the Power sector

Power companies are divided into three parts, Gencos (Power generating companies), Transcos (Power transmission companies) and Discoms (Power distribution companies). The gencos are engaged in the generation of electricity which is then transferred over to transcos which are engaged in transmission of electricity from one location to another to various discoms. Discoms buy this power from either transcos or directly from gencos and transfer the same to final consumers such as industrial, commercial and domestic consumers. The discoms charge the final consumers for electricity consumption (based on Units consumed) which is used to purchase power from transcos and gencos.

India saw a consumption of 1,252.61 BU (billion units) or 1,230 TWh (terawatt hours) in FY20 while seeing growth in both consumption and production of power every year. Industrial consumption amounted to 41% of total consumption of power in FY17-18.

Opportunities in the power sector:

  • Demand for electricity is expected to increase – per capita consumption of electricity is estimated to be at 1,894.70 TWh by FY22.

  • Demand is currently higher than supply by about 7.5%, giving room for scaling up production capacities.

  • The government is taking up multiple reforms which are aimed to improve the entire power sector over the long term.

  • The government is not only taking initiatives to increase overall renewable capacity but also its share in the overall power capacity in India.

When looking at Power companies, an investor should keep the following factors in mind:

  • Investors need to assess the debt levels of the companies, especially for discoms. This is because discoms have to first pay to buy power, either by entering a PPA (power purchase agreement) or buying it from the power exchange, and then get paid for power used by consumers. The period between paying and receiving money has to be supported using debt, therefore, discoms usually run high levels of debt.

  • Assess the capacity of production and the PLF (power load factor) at which these companies generate electricity. PLF is the ratio of power generated/max capacity, a higher PLF ratio can be indicative of future capex the company may take up, since setting up capacities is highly capital intensive. This could be indicative of the way cash flows are utilized.

  • Investors should assess the operating cash flows generated by a company which provide a more consistent idea vs the net profit as these companies are subject to large non-cash items such as depreciation which can affect profits.

  • Assess the realisation per unit figure for the power companies to identify per unit efficiency in generating revenues. Higher the number, better it is for the revenues of the company.

bottom of page