ICICI Securities on Tata Power - Strong quarter; robust growth visibility ahead - BUY rating

Tata Power: Strong quarter; robust growth visibility ahead

Tata Power Company (TPWR) reported strong performance in Q1FY23 with high revenue and profit growth. On consolidated basis, the company's reported revenue for the quarter, at Rs147.5bn, was up 51% YoY mainly due to higher power sales across discoms and higher PAF and PLF for Mundra. Reported PAT (TPWR's share) was up 103% YoY at Rs7.9bn, boosted by higher profits in the coal business, and despite losses booked for Tata Projects and TPSSL, as well as the negative impact of conservative accounting for CGPL. As per the company, the first tranche of Rs20bn from TPREL stake sale is expected in the next few weeks, which will immediately provide growth capital to the company, making it more competitive in auctions. For CGPL, tariff determination by CERC as per section-11 of the Electricity Act will aid reduction in under-recoveries. Further, supplementary PPA, if signed with Gujarat, will be a major positive. Since provisioning and write-offs are now complete for both Tata Projects and TPSSL, we believe they should turn-around from Q2FY23 onward. Easing of commodity prices and domestic contract manufacturing arrangements in case of TPSSL will also help. Maintain BUY.

- Strong revenue and profit growth: For Q1FY23, TPWR's reported revenues (consolidated) were up 51% YoY at Rs147.5bn mainly due to higher power sales across discoms and higher PAF & PLF for Mundra. Reported PAT (TPWR's share) was Rs7.9bn, up 103% YoY, boosted by higher profits in coal business, and despite losses at Tata Projects and TPSSL during the quarter. Underlying EBITDA was Rs29.1bn, up 6.6% YoY. GreenCo EBITDA increased 21% YoY to Rs7.8bn.

- CGPL and coal companies' performance was robust: CGPL and coal companies posted profits of Rs5.1bn during the quarter, despite negative impact of Rs3bn due to conservative accounting and forex MTM losses and Rs1.5bn due to under-recoveries.

- Receipt of first tranche of Rs20bn through equity infusion in TPREL will bolster RE competitiveness: Raising Rs40bn (~US$525mn) by offloading 10.53% stake in its renewables arm - TPREL - to GreenForest New Energies Bidco Limited (UK), a consortium led by BlackRock Real Assets with Mubadala Investment Company at a pre-money equity valuation of Rs340bn. Investment will be in two tranches. First tranche of Rs20bn will be received in the next few weeks as the transaction has received approval from the CCI.

Shares of Tata Power Company Limited was last trading in BSE at Rs. 221.90 as compared to the previous close of Rs. 218.15. The total number of shares traded during the day was 1895119 in over 26920 trades.

The stock hit an intraday high of Rs. 222.60 and intraday low of 218.80. The net turnover during the day was Rs. 418280336.00.

Source : Equity Bulls

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TataPowerCompany INE245A01021 ICICISecurities BUYRating