Axis Direct is bullish on Tata Power has recommended buy rating on the stock with a target price of Rs 95 in its research report dated November 09, 2017.
Axis Direct's research report on Tata Power
Q2 PAT at Rs 2.7 bn was above our estimate of Rs 2.2 bn despite one-off of Rs 1.5 bn (Rs 1.1 bn Docomo and Rs 350 mn Rithala plant), but sharply below sreet’s expectation at Rs 4.4 bn. Performance of Mundra UMPP detoriated on rise in coal prices, but strong performance by coal companies supported by improvement in coal realization helped to more than offset Mundra losses. Renewables reported seady growth due to higher emphasis on improving operational metrics. Net debt as on Sept'17 stands at Rs 389 bn, resulting in leverage of 2.4x. Management targets to reduce leverage to 2x through divesting non-core assets which includes Tata Communications worth Rs 22 bn and Arutmin mine worth Rs 26 bn.Outlook
Renewables post steady growth: Renewable portfolio reported revenue and EBITDA of Rs 5.1 bn and Rs 4.8 bn respectively in Q2FY18. Tata Power did not face any material off-take (PLF of ~19% for solar) or receivables issues. Smaller issues in Tamil Nadu also seems to be ironing out in September and October. Other renewable players are facing issues of both lower off-take and high receivables. We value Renewable business at 8x EV/ EBITDA FY19E (equity valuation of Rs 19/ share).
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