Tata Power’s aim to boost profit by 4x in 5 years fails to lift its target price

NEW DELHI: Despite falling 22 per cent from its 52-week high, shares of are up a solid 84 per cent, as far as one-year return goes. The Tata Group company is aiming high, and in its analyst meet, set ambitious targets to triple its revenue and quadruple its PAT over the next five years by FY2027. But analysts have doubts and see little reason to change their stance on the scrip. Their price targets suggest a limited upside for Tata Power ahead.

Kotak Institutional Equities said it juxtaposed the targets with the performance up to FY2022 and targets for FY2025, to highlight that a large part of profit growth over 2020-22 came from higher coal profits, which were offset by higher losses at Mundra.

The renewable piece has had strong performance on top-line growth through limited contribution to the bottom-line, it said adding that a more permanent fix for the disputed compensation for Mundra could be a key catalyst for the stock in the near-term — though Street has been disappointed on the same in the past.

This brokerage has a ‘sell’ rating on the stock with a target of Rs 230. CLSA also maintained its ‘sell’ rating on Tata Power with a target of Rs 212. This brokerage also cited coal as key PAT driver and felt the stock was expensive.

said it has been a proponent of Tata Power’s mighty transformation that is now gathering momentum.

“While a four times increase in PAT and 400 bps improvement in RoE look aspirational, we do not rule out a 2.5-3 times jump in PAT over the next five years, should the external environment improve. Further, capital raise or equity infusion is no deterrent for growth and stake sale/non-core divestments could be at play. Given the tricky power demand-supply scenario, Mundra resolution is in the final stages. This, along with a high coal price scenario, bodes well for Tata Power,” Edelweiss said. This brokerage sees the stock at Rs 262.

Over FY23-FY27, Tata Power would target a capex of Rs 1 lakh crore, taking its capital employed from Rs 65,600 crore at FY22-end to over Rs1.6 lakh crore by FY27. A total of 80 per cent of the capex is targeted at green businesses including utility-scale RE and solar manufacturing, while 17 per cent is intended to be spent on the T&D businesses.

The company is also aiming to increase revenue by three times from Rs 42,600 crore level and PAT by 4 times from Rs 2,300 crore level. It is looking to improve both RoE to over 13 per cent from 8.5 per cent and RoCE to over 11 per cent from 8.9 per cent.

“We expect Tata Power to be among key players in the T&D space, participating in upcoming discom privatisation as well as transmission TBCB bids. Debt reduction and elevated coal prices paint a positive picture for CGPL and coal businesses currently. Since provisioning and write-offs are now complete for both Tata Projects and TPSSL, we believe they should turnaround from Q2FY23E onward,”

said.

The brokerage has maintained its SoTP-based target price of Rs 262 but downgraded the stock to ‘Add’ from ‘Buy’ due to the stock price run-up.

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