Buy Torrent Power; target of Rs 300: Motilal Oswal

Motilal Oswal's research report on Torrent Power

EBITDA grew 3% YoY to INR31.9b, while PAT was down 5% YoY to INR8.9b in FY19. The numbers are not comparable to the previous year, as the company used to follow cash-accounting for its regulated distribution business until FY18. Assuming similar accounting even in the previous year, TPW’s EBITDA would have increased by ~10% and PBT by ~29%. The strong underlying performance was driven by: INR1.4b from the distribution franchisee, as AT&C losses in Bhiwandi and Agra were down by ~240bp/480bp to 14.9%/16.1% in FY19. INR0.9b from the regulated distribution circles of Ahmedabad and Surat, led by an increase in regulated equity and ~50bp YoY lower T&D losses in Ahmedabad. INR1.2b from thermal efficiency and PLF incentive, as PLF at the AMGen coal plant increased from 71.3% in FY18 to 87.8% at end-FY19. INR0.6b from renewable energy (RE) as generation increased 53% YoY. For 4QFY19, EBITDA was down 4% QoQ to INR7.1b (our estimate: INR7.9b). PAT declined 90% QoQ to INR240m (our estimate: INR1.8b) due to a higher effective tax rate of ~89% (v/s 6.1% in 3QFY19) and lower other income.

Outlook

TPW is well poised to capitalize on opportunities stemming from distribution privatization, the thrust on RE, and consolidation in the conventional generation sector given its execution track record, expertise and strong balance sheet. We revise our SOTP-based TP to INR300 (prior: INR315). Maintain Buy.