Edelweiss is bullish on Tata Power has recommended buy rating on the stock with a target price of Rs 96 in its research report dated November 06, 2017.
Edelweiss' research report on Tata Power
Tata Power’s (TPWR) Q2FY18 operating profitability jumped 25% led by renewable business and addition of Walwahan renewable (not in base quarter). Key highlights: a) CGPL’s operating performance improved (INR1.1bn EBITDA versus INR0.8bn loss in Q1FY8) on account of INR0.20 reduction in fuel cost under recovery; and b) significant improvement in profitability of coal mining companies (2x jump in EBITDA) due to better coal prices. While CGPL’s losses have been factored in, we believe there are ample triggers for the stock to re-rate: 1) TPWR’s ability to contain coal cost to mitigate the under recovery and diversification of coal sourcing; 2) sustained good performance of renewable business; and 3) successful execution of divestment plans, which could prune debt: equity ratio to 2x from current 3x. Maintain ‘BUY’.
TPWR’s endeavour to prune debt, if successful, could be a key trigger for the stock. We raise our SOTP-based TP to INR96 (earlier INR88) factoring in: 1) higher contribution from KPC & Bumi due to higher coal prices; and 2) strong growth in renewable business. We maintain ‘BUY/SP’.
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