Buy Tata Power; target of Rs 136: Axis Direct

Axis Direct's research report on Tata Power

Q3 PAT at Rs 6.3 bn beat our estimate of Rs 5.7 bn mainly due to lower-than-expected losses at Mundra UMPP on improving operational metrics. Up-to-mark performance by coal companies (EBITDA up 55% YoY) helped to partially offset Mundra losses and one-off at Maithon plant. Renewables posted steady growth with EBITDA at Rs 14.6 bn in YTDFY18. Net debt as of Dec'17 stood at Rs 463 bn (leverage of 2.7x), with management targeting to reduce it to 2x through divesting non-core assets.

Outlook

We maintain BUY and raise TP to Rs 136 as we (a) upgrade renewable portfolio to 10x EV/EBITDA (from 8x earlier) based on recent market transactions, (b) include valuation of Tata Projects (Tata Power holds 48% stake in Tata Projects) and (c) roll forward to FY20. For all recommendations report, click here

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.