Should you buy, sell or hold Tata Power shares post Q1?

Shares of Tata Power gained nearly 3% in intraday trade on Thursday after the Tata Group company reported strong earnings in the first quarter ended June 2023. The country’s largest integrated power company has reported net profit growth for the 15th consecutive quarter on an annual basis on broad-based performance across all business clusters.

Continuing its gaining streak for the third straight session, Tata Power opened a tad higher at ₹236 against the previous closing price of ₹234.9 on the BSE. During the session so far, the largecap stock gained as much as 2.87% to ₹241.65, driven by strong volume trade.

At the time of reporting, Tata Power shares were trading 1.6% higher at ₹238.65, with 21.84 lakh shares changing hands over the counter on the BSE compared to the two-week average volume of 11.61 lakh stocks. The market capitalisation stood at ₹76,225 crore.

Tata Power shares trade close to its 52-week high of ₹251 touched on September 7, 2022, while it has risen 32% against its 52-week low of ₹182.45 hit on March 28, 2023. The recent rally in share price can be attributed to positive credit ratings and stable outlook for the power sector.

For the April-June quarter of the current fiscal, Tata Power Company reported a consolidated net profit of ₹1,140.97 crore, up 29% from ₹883.54 crore a year ago. Sequentially, the consolidated profit grew 21.5% as compared to ₹938.81 crore in the quarter ended March 31, 2023.

The consolidated revenue from operations increased marginally by 1.5% to ₹14,982.55 crore in Q1FY24, compared to ₹14,752.69 crore during the same period last year. On quarter-on-quarter, the consolidated revenues rose 17.6% from ₹12,737.37 crore in Q4FY23.

On the operational front, the consolidated EBITDA jumped 43% to ₹3,005 crore as against ₹2,107 crore in the same period last year, on account of lower under-recovery in the Mundra plant and positive regulatory order in Maithon Power Limited (MPL).

Praveer Sinha, CEO & MD, Tata Power said, "We have planned nearly ₹12,000 crore of capex for the current financial year that would help us lead the green energy transition and in the growth opportunities in the transmission and distribution business.”

“Tata Power is well poised to develop round the clock renewable power solutions. We are making significant progress in developing solutions around battery storage, pumped hydro projects, and other hybrid solutions. This will support the RE100 agenda of large enterprises and also contribute towards clean energy solutions for our C&I consumers."

Analysts views on Tata Power Q1

BoFA Securities                              Target Price ₹263

The foreign brokerage has retained ‘Buy’ rating with an upgraded target price of ₹263 versus ₹258 earlier, citing that the company remained a key beneficiary of India’s renewable energy push.

“We see earnings visibility on a) continued imposition of Section 11, b) lower fuel costs on easing of coal prices, c) strong performance by discoms, and d) higher execution and lower polysilicon prices aiding margins in solar EPC business. We continue to see TPWR as a key beneficiary of India's renewable energy push,” it said in a report.

The agency believes valuations, though expensive, could sustain on Indonesian coal profit traction. “Besides, utility characteristics of ex-Mundra/ solar earnings also provide comfort. Potential monetisation of renewables biz at higher than expected valuation, passage of draft legislation to reform power distribution sector could also be further upside triggers.”

JM Financial                                    Target Price ₹220

The brokerage house said Tata Power’s Q1 net revenue was in line with expectations, led by higher sales across distribution companies and capacity addition in renewables. The reported PAT was up 22% YoY versus the agency’s estimates of 23%, primarily due to an exceptional item of deemed gain on dilution of stake from 47.78% to 30.81% in Tata Projects. The agency maintained ‘HOLD’ rating on the company with a SOTP-based target price of ₹220 per share.

“With stable cash flows from its regulated generation and distribution businesses, the company is focusing its resources on the transition to cleaner fuels and aiming to be a market leader in all sub-segments. The positives from the growth in renewables and distribution are factored in the valuation whereas the overhang of the long-term PPA for the Mundra plant continues,” it said.

Axis Capital                                    Target Price ₹249

The domestic brokerage has maintained ‘ADD’, saying that it “really see no rush to buy”. It has given a price target of ₹249.

“We are constructive on Tata Power over the medium term as –(a) Incremental capital allocation is clean and green – either RE or T&D; (b) Tata Group is among the biggest conglomerates in India and group companies like Tata Steel and Tata Motors will require hybrid green power (even RE-RTC over time) which promises group captive opportunities for TPWR; (c) Strong capabilities/ management bandwidth across the power sector value chain. It is a play on PSH given existing rain-fed reservoirs in Maharashtra (eyeing 2.8 GW PSH),” it said.

Elara Capital                                   Target Price ₹272

The agency has reiterated its ‘Buy’ rating with an unchanged target price of ₹272. “Management plans: 1) to scale up RE capacity to 15.0GW by FY25 from the current 4.1GW, 2) increase focus on the power distribution business, and 3) seize opportunity in the solar EPC business. We retain our estimates over FY24-25,” it said in its report.

Antique                                           Target Price ₹275

The brokerage house has maintained a ‘BUY’ rating on Tata Power at a target price of ₹275 per share. “Admittedly, FY23 was a record year for windfall gains in coal for Tata Power Company (TPWR). In FY24, that trend is unlikely to repeat itself. For instance, TPWR has made up for the loss in coal profit through (1) A strong revival in Odisha DISCOMs, (2) An increase in RE assets contributing to higher EBITDA, and (3) A favorable order in Maithon. The benefits of a diversified portfolio are playing out, with EBITDA—even in an adverse scenario—showing resilience,” the agency said in its report. 

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