Buy this Tata Group stock multibagger for a target price of Rs 282
Main investment rationale for Tata Power Company Ltd (TPCL) according to Edelweiss
- TPCL’s business models are decoupled – minimal demand/volume risks, as over 80% of PAT is attributable to regulated core business. Thus, the basic profits are sufficiently resilient even in the event of a drop in demand.
- Management’s plan to trim D/E from ~2.3x to 1.4.x inspires confidence. The advanced divestment pipeline is INR 40-55 billion (equity) is expected to gain momentum over the next 6-12 months, which could reduce the D/E to less than 1.4x.
- We see a few potential triggers (like Mundra resolution, renewable InvIT, CESU acquisition, etc.) in the stock that could occur over the next 12-15 months.
- TPCL’s strategic intent – business restructuring and deleveraging – has begun to crystallize and will go a long way in boosting investor confidence, in our view.
- The narrative is gradually shifting from a deleveraging/value proposition business to a growth driven business, with management setting an ambitious FY25 target of doubling revenue to ~INR 600 billion, tripling profit to INR 36 billion and increase RoE by 550 basis points to 12% and above.
Brokerage firm’s take on Tata Power Company
The brokerage firm said that “Tata Power has signed a Distribution Franchise Agreement (DFA) with Ajmer Vidyut Vitran Nigam Limited (AVVNL) to meet the electricity needs of Ajmer’s customers for a period of 20 years. Its presence international includes strategic investments in Indonesia through a 30% stake in leading coal company PT Kaltim Prima Coal (KPC) to secure coal supply and coal shipment for its thermal power generation operations and in Bhutan through a hydroelectric project in partnership with the Royal Government of Bhutan. The company also holds a 26% stake in a “Resurgent” SPV which has acquired a 1,980 MW power plant in Prayagraj.
The brokerage also believes that significant risks to the stock include fluctuating international coal prices and high levels of debt, which investors should watch out for.
The stock was featured in the Edelweiss Financial Services Ltd brokerage report. Investing in stocks presents a risk of financial loss. Investors should therefore exercise caution. Greynium Information Technologies, the author, and the brokerage are not responsible for any losses caused as a result of decisions based on the article.