Tata Power - Inline result; alternative to InvIT on cards - HDFC Securities

Mr. Anuj Upadhyay, Institutional Research Analyst, HDFC Securities

Tata Power reported consolidated revenue at INR 101.3bn (+53%/+33% YoY/QoQ) in Q4FY21. The numbers are not comparable to our estimates due to the acquisition of Odisha distribution circle. The growth was also aided by strong execution of solar EPC projects. However, EBITDA declined 8.5% yoy to INR14.5bn due to increased losses in Mundra project from the rise in coal prices. The deleveraging exercise helped the company in lowering its interest expenses, which along with a deferred tax credit led to a 38.6% yoy rise in its APAT to INR3.9bn. Solar EPC order backlog stood strong at INR 87.4bn. While InvIT transaction missed the FY21 end target, the management has indicated a much better alternative for monetisation of its renewable assets which could fetch a higher valuation. We have revised our earnings estimates factoring the inclusion of Odisha discoms and exclusion of renewable business in our estimates. We reiterate our buy on Tata Power factoring in the growth in EPC business, higher regulated capex, debt reduction and merger benefits. We assign a SoTP TP of INR127 (+ 17% from the CMP).

Earnings boosted by deleveraging exercise: Consolidated revenues grew by (+53%/+33% YoY/QoQ) to INR101.3bn, led by a strong performance in Solar EPC (+380% yoy) and inclusion of Odisha business (INR18.8bn in Q4FY21). EBITDA, however, declined 8.5% yoy to INR14.5bn due to increased under recovery in Mundra project from the rise in coal prices (INR0.74/unit in Q4FY21 vs INR0.45/unit yoy). APAT though rose 38.6% yoy to INR3.9bn, driven by high contribution from the solar EPC business, reduction in interest expenses (-18.4% yoy to INR8.9bn) and deferred tax credit of INR3.5bn in Q4FY21. Standalone revenue declined 11.6% yoy to INR15.6bn, dragged by lower demand while its PAT came in at INR1.6bn vs a loss of INR 3.2bn due to higher dividend from JV companies.

Net debt reduced to INR359.5bn in FY21: Net debt for Tata Power fell to INR359.5bn as of Mar'21 from INR435.8bn yoy. Accordingly, its net D/E declined to 1.4x in FY21 vs 2.0x yoy while Net debt/EBITDA declined to 4.1x in FY21 vs 4.7x yoy. While the company missed its targeted net debt level of INR250bn by FY21 due to the non execution of the proposed InvIT transaction, the management has indicated a much better alternative for monetisation of its renewable assets which could fetch a higher valuation.

Maintain a Buy: We reiterate our BUY rating on Tata Power, factoring in the growth in EPC business, higher regulated capex, debt reduction and merger benefits. However, we have revised our earnings estimates factoring in the inclusion of Odisha discoms and exclusion of renewable business in our estimates. We assign a SoTP TP of INR127 (+ 17% upside from the CMP).

Shares of TATA POWER CO.LTD. was last trading in BSE at Rs.101.45 as compared to the previous close of Rs. 106.55. The total number of shares traded during the day was 5209943 in over 18173 trades.

The stock hit an intraday high of Rs. 107.95 and intraday low of 101.05. The net turnover during the day was Rs. 535266003.

Source : Equity Bulls

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