Torrent Power - Lower T&D losses and interest cost lift PAT - HDFC Securities

Mr. Anuj Upadhyay, Institutional Research Analyst, HDFC Securities

Torrent Power (TPW) reported consolidated revenue of INR 31.0bn (+3.1% YoY) in Q1FY22. Power demand, though increased by 38% YoY, led by restoration of industrial demand, was still down 13% compared to the pre-COVID level. EBITDA declined 24.9% YoY to INR7.3bn on the back of increased power purchases and rise in O&M expenses from increased operating activity. Deleveraging, along with fall in interest rates, have led to a fall in interest expenses. After adjusting for one-offs and prior period elements, adjusted PAT increased by 158% YoY to INR2.5bn in Q1FY22. We have revised our SoTP TP to INR511 by assigning higher multiples across the franchisee segment to factor in improved industrial demand, fall in AT&C losses, improved net D/E ratio, and a sustainable FCFE of ~INR10bn p.a. Hence, we reiterate our ADD rating on TPW.

T&D losses decline across circles: Power demand increased by 38% YoY, led by restoration of industrial activity, but was down 13% from the pre-COVID level, due to the impact of the COVID second wave. T&D losses declined across Ahmedabad/Bhiwandi/Agra to 7.7%/11.6%/17.4% from 15.4%/24.5%/ 22.8%, led by improved consumer mix and collections. Revenue grew by 3.1% YoY to INR31.0bn, led by rise in generation across the gas based stations, while generation from the renewables declined during the quarter (wind: - 2.4% YoY, solar: -6.7% YoY). EBITDA, however, declined 24.9% YoY to INR7.3bn on the back of increased power purchases (+38.9% YoY) and rise in O&M expenses (+12.7% YoY) from increased operating activity. Interest cost declined 26.1% YoY from the deleveraging exercise and fall in interest rates. After adjusting for one-offs (INR210mn in Q1FY22 as provision for doubtful debts and INR3.4bn during Q1FY21 towards favourable regulatory order of past claims), adjusted PAT increased by 158% YoY to INR2.5bn in Q1FY22.

515 MW of solar capacity under construction: TPW targets to commission 100 MW of solar capacity by July 2022 (PPA - GUVNL at INR1.99/unit) and 300 MW of capacities by Nov 2022 (PPA - TPLD at INR2.22/unit). Furthermore, it has acquired 50MW of solar project in Maharashtra (PPA with SECI at INR4.43/unit) for an EV of INR3.2bn (net equity - INR1.0bn). Furthermore, TPW is working on reviving SECI V 115 MW solar project for which commissioning extension has been provided until Feb 2022. TPW has a debt of INR66.7bn with a healthy net D/E of 0.6x and net debt/EBITDA of 1.8x as on FY21. This gives it enough room for funding these capacities.

Reiterate ADD: We have revised our SoTP target price to INR511 (from INR476) by assigning higher multiples to the franchisee segment, to factor in improved industrial demand, fall in AT&C losses, improved net D/E ratio and a sustainable FCFE of ~INR10bn p.a. We expect TPW's RoE to improve to 15.5% by FY23 from 13.4% in FY21. Hence, we reiterate ADD.

Shares of TORRENT POWER LIMITED was last trading in BSE at Rs. 456 as compared to the previous close of Rs. 475.35. The total number of shares traded during the day was 142573 in over 3907 trades.

The stock hit an intraday high of Rs. 469 and intraday low of 441. The net turnover during the day was Rs. 64649287.

Source : Equity Bulls

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