India’s electricity demand is expected rise at a compounded annual growth rate of 5.7% over FY24, according to the brokerage. That suggests rapid electrification of the economy.

There are expectations that BHEL and Suzlon could potentially dominate the power equipment market, Kotak said in in a Sept. 11 note. Shares of BHEL have surged nearly 75% in the past six months, while Suzlon stock has nearly trebled. BHEL and Suzlon Energy have a market capitalisation of Rs 43,352 crore and Rs 30,668 crore, respectively.

According to Kotak, the implied capacity of the companies surpasses the incremental demand expected until FY28. But neither of the two operate in the solar or battery segments, which are likely to be the bigger drivers of India’s incremental electricity supply in the future, the brokerage said.

Using reverse-valuation analysis, Kotak indicates that the company would need to achieve an annual boiler, turbine, and generator capacity of 14–20 gigawatts to justify its current market capitalisation, assuming a significant margin improvement.

The state-run company received orders of a comparable scale during the fiscal 2008–2011 period, the brokerage said. But BHEL has not yet observed a significant increase in orders within the thermal power sector, which could have supported the high expectations, Kotak said.

It is uncertain whether electric utilities will invest in new thermal generation capacity given India’s commitments to addressing climate change and the rapid advancements in battery technology, Kotak said.

Based on Suzlon’s present market capitalisation, the business will need to provide 5-8 gigawatts of annual wind turbine capacity to justify the current stock price, Kotak said.

Suzlon Energy has a 33% market share of the total installed wind capacity, the brokerage said. Given the government of India’s 8 gigawatt wind capacity target for FY30, the company will have to gain a significant market share in the wind generation sector to meet current market expectations, according to Kotak.

Shares of BHEL fell 2.31% compared to a 0.1% decline in the Nifty 50 at 10:33 a.m. Suzlon’s stock was down 4.82% at the time.