Maintain BUY on Tata Power - EPC ramp-up and Odisha discom boost aid growth - HDFC Securities

Mr. Anuj Upadhyay, Institutional Research Analyst, HDFC Securities

Tata Power reported a 54.5% YoY rise in consolidated revenue at INR99.8bn in Q1FY22, led by the acquisition of Odisha discoms and strong execution across the solar EPC segment. EBITDA increased 34.3% YoY due to integrated PAT at Mundra + coal mining business (from the rise in coal prices) and higher EPC revenue. However, margin was impacted by ~350 bps YoY due to rise in module prices and increased AT&C losses during the second COVID wave. The deleveraging exercise helped in lowering its interest expenses, which along with a higher share from JV companies led to a 73.8% YoY rise in its APAT to INR4.7bn. The solar EPC order backlog stood strong at INR72.6bn. Furthermore, the liquidation across its RES business is expected to happen during FY22. While we have maintained our earnings estimates for FY22/FY23, we have revised our TP upward to INR156 by assigining higher multiples to its EPC & renewable businesses, reducing losses at Mundra and accruing benefits from the proposed merger. We retain our BUY rating.

Strong performances across segment: Consol revenue grew by 54.5% YoY to INR99.8bn, led by a strong performance in solar EPC (+381% yoy) and inclusion of Odisha business (INR28.8bn in Q1FY22). EBITDA also increased 34.3% YoY to INR23.2bn; however, the margin was down 350 bps YoY to 23.3%, led by increased module prices and AT&C losses across the Odisha circle (the impact of second COVID wave). APAT, though rose 73.8% YoY to INR3.9bn, driven by high contribution from the EPC business and reduction in interest expenses (-13.2% YoY to INR9.5bn). Interest expenses, however, increased 6.2% QoQ due to INR30bn sequential increase in net debt, due to refinancing of perpetual debt (amount was moved from equity to debt).

Green energy transition gaining momentum: Tata Power's transition into the green segment is gaining strong momentum with nearly 40%/10% market share enjoyed by its EV charging/solar EPC segments. Its solar pump/solar rooftop business witnessed 8x/4x growth during Q1FY22 with the highest- ever order book of ~INR11bn across solar pumps. Also, with the delicensing drive across the UTs and selective states, the opportunity across the discom privatisation space is getting mammoth. On RES monetisation, the company is working on various alternatives, which can fetch them better valuation.

Maintain a BUY: We reiterate our BUY rating on Tata Power's strong transition into green energy, huge growth in the EPC business, higher regulated Capex, asset monetisation and merger benefits. While we have maintained our PAT estimates, we have revised the TP upward to INR156, by assigining higher multiples to the EPC & renewable businesses and the loss reduction at Mundra. We retain our BUY rating on Tata Power.

Shares of Tata Power Co. Ltd was last trading in BSE at Rs. 132.05 as compared to the previous close of Rs. 135.15. The total number of shares traded during the day was 4299689 in over 23160 trades.

The stock hit an intraday high of Rs. 137.9 and intraday low of 130.35. The net turnover during the day was Rs. 569746436.

Source : Equity Bulls

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