Torrent Power - Growth acceleration - ICICI Securities

Torrent Power (TPW) has shown a marked aggression in its approach to grow in two business segments: renewables, and distribution. Company has received LoAs for solar projects totaling 700MW: 400MW in Gujarat and 300MW in Andhra Pradesh (currently subjudice). In Gujarat, TPW won 100MW at tariff of Rs1.99/kWh in GUVNL's auction and further 150MW at Rs2.22/kWh (own discom, with greenshoe option for a further 150MW). It emerged as the highest bidder for Dadra & Nagar Haveli and Daman & Diu discom, bidding Rs5.5bn for 51% stake. TPW has also bid for Chandigarh UT discom. We maintain HOLD on the stock, but increase our target price to Rs347 (earlier: Rs334) adding 250MW of solar projects, but await further clarity on the company's capex plan and targeted IRR for the aggressively bid UT discom.

- Solar bid wins indicate refocus on renewables as a growth area: TPW's recent bids for solar projects shows its intent of refocusing on renewables as a growth segment. Company won 100MW project in the GUVNL bid at a record low tariff of Rs1.99/kWh. Further, in a recent bid conducted by its own discom, TPW won 150MW at Rs2.22/kWh, with the discom having a greenshoe option for a further 150MW from TPW. We estimate IRR of 11-12%/13-14% for the 100MW/150MW projects. Company is also L1 for 300MW solar bid in Andhra Pradesh (currently subjudice). We expect TPW to continue with its aggressive stance in upcoming solar bids, particularly in western states (Madhya Pradesh and Rajasthan may open bids soon).

- UT discom bid is aggressive: TPW emerged as the highest bidder for the sale of 51% stake in the discom of Dadra & Nagar Haveli (DNH) and Daman & Diu (D&D) Union Territory (UT). As per media reports, TPW bid Rs5.5bn for the 51% stake. Key figures of the discom for FY20: 1) revenues: Rs45bn, 2) regulated equity: Rs2bn, 3) AT&C losses: 3.5-4.5% for DNH and 6-7% for D&D, 4) gross fixed assets: Rs11bn, 5) RoE: 15.5-16%, 6) total energy sales: 9.4BU (>96% to industrial & commercial consumers), 7) 0.15mn consumers, 8) 603-sqkm of total geographic area. With this addition, TPW will distribute nearly 25BUs catering to >3.8mn customers with a peak demand of >5GW. Prima facie, the bid for the UT discom looks aggressive given that the regulated equity is Rs2bn on which the company will earn a base RoE of 15.5-16% plus incentives (which will be limited since AT&C losses in these areas are currently very low). Company has valued the existing regulated book value of Rs2bn at Rs11bn (for 100% stake), which seems aggressive; however, annual capex over the next few years is key to build-in the growth potential more accurately We await clarity on annual capex and the IRR targeted by the company. TPW has also participated in bidding for the Chandigarh discom. We expect it to continue to participate in upcoming discom privatisation bids.

- Valuation: We maintain our HOLD rating on TPW, but increase our target price to Rs347 (earlier: Rs334), incorporating the two Gujarat-based solar projects totaling 250MW, but await further clarity on TPW's capex plan and target IRR for the aggressively bid UT discom. Increasing gas prices are a medium-term concern. However, improving demand in DF areas and upcoming capex are the positives.

Shares of TORRENT POWER LTD. was last trading in BSE at Rs.379.05 as compared to the previous close of Rs. 364.8. The total number of shares traded during the day was 289385 in over 4617 trades.

The stock hit an intraday high of Rs. 385.45 and intraday low of 368.1. The net turnover during the day was Rs. 109372360.

Source : Equity Bulls

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