Tata Power’s Stock Analysis :
Tata Power’s recent financial performance has stirred market reactions as the company disclosed a 9% year-on-year increase in net profit for the September quarter, aligning with a similar growth pattern in sales. This news prompted a 2.3% decline in Tata Power’s shares on Thursday’s trading session.
Analysts’ expectations varied, with forecasts ranging from a 13-40% rise in profit for the utility company on a 6-17% surge in sales. Looking ahead, experts anticipate that the extension of Section 11 tariffs until June 2024 and the stabilization of imported coal prices could mitigate short-term earnings volatility. The renewable energy sector is expected to be a key player in the company’s incremental growth, providing a profitable contribution to overall earnings.
For the mentioned quarter, Tata Power’s net profit reached Rs 1,017 crore, experiencing a 9% YoY increase. This uptick was attributed to the renewable energy portfolio and satisfactory earnings from Odisha discoms, compensating for the dip in coal profits.
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Kotak Institutional Equities highlights the significance of stability in imported coal prices for Tata Power’s future earnings. The sustainability of Section 11 orders for Mundra, now extended to June 2024, also plays a crucial role in shaping the company’s financial outlook.
“We’ve adjusted our earnings estimates for FY2024 by 8.7% and for FY2025 by 2%, factoring in lower losses at Mundra, realistic profitability projections for Indonesian coal mines ($25 per tonne), and growth opportunities in the renewable business. Our recommendation is a SELL rating, revising the fair value to Rs 220 per share from the previous Rs 200 per share,” states Kotak.
Post-earnings release, Tata Power’s stock experienced a 2.3% drop, reaching a low of Rs 249.05 on BSE. In contrast, Sharekhan maintains a positive outlook, emphasizing Tata Power’s focus on business restructuring, robust growth in the renewable energy sector, and its entry into power transmission. The recommendation is to BUY Tata Power with a revised price target of Rs 285.
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At the current market price, Tata Power trades at 2.3 times FY25 price to book value (BV) and 2.1 times FY26 P/BV.
The company’s management envisions sustained growth, targeting a fourfold increase in its PAT by FY2027E over FY2022. Additionally, Tata Power is actively restructuring its business to elevate the share of the high-growth renewable energy business, contributing to enhanced ESG scores.
With power demand witnessing a 13% YoY growth in the September quarter and global coal prices stabilizing, analysts are optimistic about Tata Power’s future. JM Financial maintains a HOLD rating on the company, assigning a SOTP-based target price of Rs 230 per share, emphasizing the company’s stable cash flows and strategic focus on expanding its renewable energy portfolio.
