Projections showed the thirst for power is likely to grow as aspirations of the new India soar. And a Tata venture, already in a dominant position in this business, is waiting to ride that boom and reap the rewards.
is among the largest players in high-growth areas of power distribution, solar EPC and solar rooftops. The company is also engaged in power generation with some 12,808 MW capacity and has plans to expand its renewable portfolio.
Analysts say the company’s future growth will largely be driven by clean energy initiatives like renewable energy and power distribution, which can also improve its ESG score. Besides venturing into emerging green technologies can also aid the growth.
“The company’s growth focus is rooted in solar/wind generation capacity, regulated power transmission/distribution and new ESG-positive businesses such as charging of electric vehicles, solar micro grids, rooftop solar and solar EPC. Regulated businesses in particular provide steady earnings and cash flow,” said Deepika Mundra of JPMorgan.
All these factors have helped turn the company’s stock into a multibagger, having generated over four-fold returns in 14 months by taking a leap of faith to Rs 123 from Rs 28 in May last year. Mundra expects the stock to trade at Rs 150 by March.
Analysts say growth in renewable assets and tax benefits will outweigh the losses in the company’s Mundra project, which has become a proverbial albatross around its neck. A rally in coal price can also swell the losses, but profits from its Indonesian coal mine may provide a hedge.
The company management has given a guidance for doubling of revenues to Rs 57,896 crore and trebling of profits to Rs 3,693 crore by FY25.
“Tata Power’s focus on restructuring its business and deleveraging balance sheet will play a key role in improving earnings profile on a sustained basis and improving investor confidence,” said analysts at Sharekhan.
Tata Power witnessed de-rating by analysts almost for a decade as a change in law in Indonesia impacted its profitability on the Mundra plant, receivables built up in Delhi/Mumbai and growth avenues dried up. But the situation has changed since.
Debt reduction plans
Tata Power’s March-end net debt of Rs 36,000 crore equaled 1.4 times net debt-to-equity and 4 times Ebitda. One-fourth of the debt was in regulated assets, where interest costs were passed through in tariffs. One-third of it was in renewables, and the rest 40 per cent for Mundra project and the coal SPV. The management aims to monetise asset and reduce the debt-to-equity ratio to 1.1 times.
JPMorgan said the release of Rs 3,500-4,000 crore equity could come from non-core assets. Moreover, its renewable assets are ready for listing on the bourses. That stake sale could provide it with cash to reduce debt.
“We estimate an FY22-23 EPS CAGR of 45 per cent led by a reduced tax rate on the merger of Mundra with the parent, Odisha distribution acquisition and debt reduction. As per our estimates, every Rs 1,000 crore reduction in non-regulated debt would provide about 3 per cent EPS upside,” Mundra said.
Other analysts said the company’s internal accruals are sufficient to service the interest on debt and fund its capex plans, especially in the renewable power sector.
Sharekhan has a 12-month price target of Rs 155 on the stock, which traded at Rs 123 on BSE on Friday.
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