India's power sector to rise 2.2x, defence sector to grow at 13% CAGR by 2030

India's power generation and transmission sectors are poised for substantial growth. As the country enters a phase of capex-driven GDP growth, the power intensity should rise, said Jefferies in its latest September report.

The report added that the power generation and transmission sectors are projected to rise 2.2 times to $280 billion between FY24 and FY30, compared to FY17-23. The American firm noted that the power intensity will be essential to sustain the economy's growth, as the GDP is expanding at a rapid pace.

It further added that the power consumption is expected to grow more than 7% annually. The report anticipated that by FY30, India's total power generation capacity will need to increase from 442 GW in FY24 to 673 GW, to avoid power shortages. This expansion will drive further investment in thermal power, which is expected to play a vital role in maintaining grid stability, the report added.

The country's thermal power plants, which currently operate at around 65-70 % plant load factor (PLF), will play a critical role in meeting this demand. The average annual PLF for thermal power plants is anticipated to surpass the peak levels observed in FY08 by FY28, with thermal utilisation rates already hitting 74% in FY25 to date.

However, it also highlighted that the peak power deficits are becoming more frequent, driven by years of underinvestment in the sector. To prevent regular power shortages, the focus will be on accelerating capacity additions and boosting investment in power transmission and distribution (T&D) equipment, Jefferies said.

It stated that the capacity additions are projected to rise significantly, especially in thermal power where the annual addition rate is set to increase to 17 GW from the current 2-5 GW. In line with traditional energy sources, the capacity of renewable energy will also grow rapidly.

The annual capacity addition for renewables is expected to increase 3.5 times between FY24 and FY27 compared to FY10-20, it estimated. India has set the target to achieve 450 GW of renewable energy target by 2030.

The power transmission sector is also set for significant growth, with the bid pipeline increasing seven-fold over the past three years. In February 2021, the pipeline was valued at less than Rs 150 billion, but as of now, Rs 1 trillion in projects are up for bidding.

According to the report, this rapid expansion will be driven by the government's focus on expanding renewable energy capacity, alongside the growing needs for storage, green hydrogen, data centres, and electric vehicle infrastructure.

Growth in defence companies

With regards to the country's defence sector, the potential market opportunity for Indian defence companies is expected to rise at 13% CAGR (compound annual growth rate) over financial year (FY) 2024-FY 2030E (estimated), driven by the government's indigenisation focus on export opportunity, Jefferies added in its sectoral report on defence.

Citing factors such as global geopolitical tensions and India's rising focus on self-reliance, the report added that these factors are fuelling order flow and revenue growth for domestic defence companies. "Government focus on building country-to-country relations to promote exports is icing on the cake," Jefferies added.

It further added that India's defence spending will double between FY24 and FY30, which should continue to push the stock prices of the defence companies higher. India is expected to have a defence market opportunity worth $90-100 billion over the next 5-6 years, with the defence industry likely to grow at 13% annually from FY24 to FY30.

It added, that even though India is one of the top three countries in terms of defence spending globally, in 2022, its spending was only about 10% of what the U.S. spent and 27% of China's spending. India is the second-largest importer of defence equipment, making up 9% of global arms imports.

The expectation is that India's defence spending on big equipment (capital defence) will keep growing at around 7-8% per year, just like in the last 10 years, the American financial services company stated in its anticipation.

Going further, it added that the export defence opportunity for the companies is expected to rise at 18 % CAGR in FY24-30E. India's defence exports rose 14 times in FY17-24 to $ 2.6 billion. "We believe this should rise further to $7 bn by FY30E and is directionally in line with the government target of achieving $ 6 billion by FY29E," it added.

For Indian exporters, Italy, Egypt, the UAE, Bhutan, Ethiopia, and Saudi Arabia form the most attractive defence destinations. Middle East (ME) accounts for 33 % of global arms imports at $ 11 billion and offers an opportunity for India. Qatar and Saudi account for 52 % of ME imports, as per the report.