Buy Tata Power Company; target of Rs 245: Sharekhan

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Sharekhan's research report on Tata Power Company

Q3FY23 consolidated reported PAT grew by 122% y-o-y to Rs. 945 crore supported by revenue booking of Rs. 439 crore for earlier quarters given favourable CERC order for Mundra UMPP, higher y-o-y coal profit offset by lower profitability for solar EPC. Excluding for one-off benefit from CERC order, adjusted PAT of Rs. 617 crore (up 45% y-o-y) was below our estimate of Rs. 925 crore. Standalone PAT of Rs. 1,504 crore (vs. net loss of Rs. 407 crore in Q3FY22) benefiting from a favourable CERC order, higher power price in its distribution business. Coal profits grew by 53% y-o-y (down 13% q-o-q) to Rs. 955 crore. Solar EPC profit fell by 31% y-o-y to Rs. 49 crore due to lower order execution and margin contraction. Large scale solar utility order book remains flat q-o-q at Rs. 15,540 crore. The company intends to sign revised PPAs for the Mundra UMPP but recent CERC order mandates to share 30% of the mining profit with power purchasers would result into some under-recovery. Tata Power has a well-planned strategy to shift towards clean energy and targets for 4x rise in its PAT by FY2027E over FY2022 and RoE to 13% (versus 7.8% in FY22). 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 a revised PT of Rs. 245. At CMP, the stock trades at 2.4x/2.1x FY24E/FY25E P/BV.

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Tata Power Company - 06 -02 - 2023 - khan