Tata Power's renewable arm raises Rs 4k cr from BlackRock; stk crashes 7.5%

Shares of Tata Power crashed 7.5 per cent to Rs 252 apiece on the BSE on Monday as investors booked profit in the stock, post the company's announcement of rasising Rs 4,000 crore for its renewable energy platform. At 12:03 PM, the stock was 5.6 per cent down at Rs 257.7 per share as against a 2.13 per cent decline in the S&P BSE Sensex.

On Thursday, the Tata group's power unit on Thursday said it was raising Rs 4,000 crore (or $525 million) from a consortium of investors, including BlackRock and Mubadala, to scale up its renewable energy business. The investor group will get a 10.53 per cent stake in Tata Power Renewable Energy for the money injected by way of equity and compulsorily convertible instruments, Tata Power said. READ HERE

The company has entered into a binding agreement with the Blackrock-led consortium to invest in the subsidiary at a base valuation of Rs 34,000 crore ($ 4.5 billion). The objective, it said, was to create a comprehensive energy platform.

The post-money base equity valuation is Rs 38,000 crore for a 10.53 per cent equity stake in TataPower Renewable Energy, while the pre-money valuation is Rs 34,000 crore. However, the final shareholding will range from 9.76 per cent to 11.43 per cent at the time of final conversion into equity shares, depending on the actual FY23 TPREL EBITDA performance, which would translate to an equity valuation of Rs 35,000 crore for a 11.43 per cent stake and Rs 41,000 crore for a 9.76 per cent stake. 

Moreover, as per the new structure, TPREL will comprise TPWR's entire green energy portfolio, ranging from utility scale project, EPC, solar rooftop, solar pump, solar manufacturing to EV charging. It has an existing debt of Rs 1,600 crore and, thus, the enterprise value of TPREL comes to Rs 50,000-54,000 crore. Also, going ahead, all green energy-related new business segments, viz. battery energy storage or green hydrogen business, will also come under this new TPREL platform.

According to Manoj Dalmia-Founder and Director at Proficient Equities, the deal, at base case, is valued at 14.7x FY23E EV/Ebitda which will set benchmarks for valuation of the renewable energy business.

"This is better valued than INvIT which is likely to be valued at 8x FY23 EV/Ebitda. The stock can be bought or can be accumulated at current levels as the breakout that took place earlier was with a good volume, while the overall rise in energy consumption and prices remains promising. Out target price stays at Rs 313," he said.

However, those at HDFC Securities opine that while the deal is better than the earlier monetisation plan through InvIT (which was likely to be valued at ~8x FY23 EV/EBITDA), it is below our expected equity value of Rs 4,500 crore for the entire renewable portfolio. 

"Accordingly, we have cut our target price to Rs231 from Rs 277, by assigning the implied equity value to its renewable portfolio, as per the proposed deal. Eventually, we downgrade our rating on Tata Power to SELL from REDUCE," the brokerage said in a report.