Buy Tata Power Company; target of Rs 245: Sharekhan

Sharekhan's research report on Tata Power Company

Q4FY23 consolidated reported PAT of Rs. 778 crore (up 54% y-o-y) and broadly in line with our estimates. The y-o-y growth was led by a one-off dividend income of Rs. 512 crore and strong performance of solar EPC business, which offset lower profit share from JV & associates (due to loss at Tata Projects and lower coal profits q-o-q) and provision for shipping cost (Rs. 200 crore). The company did not disclose UMPP + Coal profits. TPSSL’s (solar EPC) PAT was up 5.6x y-o-y to Rs. 156 crore led by higher margin of 8.1% (up 598/137 bps y-o-y/q-o-q) given execution of higher margin projects. Solar EPC order book increased by 13% q-o-q to Rs. 17,468 crore, while that for solar rooftop stood at Rs. 1,903 crore. Net debt declined by 7% q-o-q to Rs. 35,328 crore as of March 2023. Mundra UMPP’s (four out of five units) would operate under Section 11 of Electricity Act till June 2023 and will likely get extended to October 2023, depending upon power demand supply situation. Tata Power has a well-planned strategy to shift towards clean energy and targets for 4x rise in its PAT by FY2027E over FY2022. 4GW solar cell and module plant on track and would reduce cost/improve margin for solar EPC business.

Outlook

We maintain a Buy on Tata Power with an unchanged PT of Rs. 245. At CMP, the stock trades at 2x/1.8x FY24E/FY25E P/BV. Lesser disclosures and the recent fall in imported coal price to remain an overhang on stock price in near term.