Encouraging results for April-June quarter of FY24 lifts Tata Power stock

However, analysts have mixed views due to muted coal price outlook

Tata Power declared encouraging results for the April-June quarter (Q1) of the 2023-23 financial year (FY24). The firm’s revenue rose 5 per cent year-on-year (Y-o-Y) to Rs 15,210 crore. It was driven by higher sales to distribution companies (discoms) and capacity addition in renewables.

Company’s adjusted profit after tax (PAT) rose 3 per cent to Rs 906 crore with reported PAT at Rs 1,100 crore on a one-time gain of Rs 235 crore. Tata Power’s stake was diluted to 31 per cent in Tata Projects, from an earlier 48 per cent, resulting in this gain of Rs 235 crore due to increase in book value after equity infusion.

The transmission & distribution (T&D) business grew by 3.6 per cent Y-o-Y while renewables (RE) segment was flat Y-o-Y at Rs 2,100 crore, but down 19 per cent quarter-on-quarter (Q-o-Q). The earnings before interest, tax depreciation and amortisation (Ebitda) came in at Rs 2,900 crore vs Rs 1,700 crore in Q1FY23, for 43 per cent growth Y-o-Y. Positives includes lower fuel cost, price hikes by discoms and higher power generation. But profits from joint ventures (JVs) declined Y-o-Y by 56 per cent as coal prices moderated.

Form’s net debt increased 7 per cent Q-o-Q to Rs 37,700 crore due to higher capex. The net debt: equity ratio is comfortable at just over 1x. The capex target is set at Rs 12,000 crore for FY24 with a focus on RE. The Q1FY24 capex was Rs 2,100 crore. The RE portfolio stands at 7,807 megawatts (MW) now with operational capacity at 4,111 MW (3.1 gigawatts or GW solar and 0.97 GW wind), with the balance under construction (1.35 GW solar and 2.33 GW hybrid).

The management guidance is for RE capacity to scale to 15 GW operationally by FY25 with an annual run-rate of 2.5 GW-3 GW. The total capacity is around 14.3 GW, including around 450-500 MW overseas. Apart from generation, there will be increased focus on power distribution and on solar EPC (engineering, procurement and construction).

Only four out of five units at Mundra were operational in Q1FY24. Section 11 of the Electricity Act has been invoked which means plants like Mundra, which depend on imported coal, must operate at full rated capacity. However, softer global coal prices could mean margin gains for Mundra. One analyst estimates the unit’s Ebitda could cross Rs 1,200 crore for FY24. Higher execution in solar EPC should also support operating leverage in future. But coal JVs could continue to drag in terms of profits due to lower prices. Offsetting Mundra gains versus potential losses in coal JVs, the net effect on the bottomline is likely to be negative. 

The Odisha discoms could institute price hikes and revenue in this segment was up 17 per cent Y-o-Y, and margins almost doubled with attributable PAT up 6x Y-o-Y. In solar EPCs, the order book was at 4.2 GW with orders worth Rs 17,600 crore to be completed in the next 12-18 months.

Given lower polysilicon and module prices, solar EPC execution could see a pickup – the Ebitda margin here was at 4.3 per cent and there could be an upside. The company also has a Memorandum of Understanding with Maharashtra for a 2.8 GW pumped storage project on existing hydro reservoirs with an estimated Rs 14,000 crore capex across six reservoirs in pumped storage. 

The company has stable cash-flows and an all-India generating presence. It seems to have turned the Odisha discoms around. 

The company’s stock rose by around 1 per cent to close at Rs 237.15 on the BSE, even as leading indices fell by half a per cent on Thursday. However, analysts’ views are mixed due to some pessimism around coal exposure. The Q1 results were announced on Wednesday evening. According to Bloomberg, only 3 out of 9 analysts polled since August 9 are positive on the stock; 2 have ‘hold’ and four have ‘sell’/‘reduce’ ratings. Their average one-year target price is Rs 228.4.