Motilal Oswal's research report on Torrent Power
Torrent Power (TPW) has emerged as the highest bidder for the acquisition of 51% stake in Distribution companies (DISCOMs) of the Union Territories of Daman & Diu and Dadra & Nagar Haveli. The takeover would be subject to completion of certain formalities, as per the management. The move does not catch us by surprise and is in line with the management's strategy of increasing its presence within the Distribution space. With a healthy Balance Sheet (net debt-to-equity less than 1x) and strong expertise, the company is well armed to capitalize on privatization opportunities within this space. Media reports suggest TPW's bid of INR5.55b for the acquisition. Based on the current regulated equity base of the two DISCOMs and regulated RoEs of 16%, the bid appears on the higher side. We await clarity on the same. The company has been an efficient operator in its existing circles in Gujarat, with a strong reduction in AT&C losses and ability to generate returns higher than regulated RoEs.
Outlook
Continued capitalization within regulated Distribution would continue to aid earnings. Maintain Buy with a SoTP based TP of INR437/share.
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