Tata Power shares dropped nearly 9 per cent on the back of a weak Q4 earnings report. Tata Power on Friday said its March quarter consolidated net profit came in at Rs 632.37 crore, up 31.41 per cent from Rs 481.21 crore in the same quarter last year. The company said its revenue from operations stood at Rs 11,959.96 crore, rising 15.41 per cent from Rs 10,362.60 crore from the corresponding quarter year ago. The Board also recommended a dividend of Rs 1.75 per equity share.
Dr. Praveer Sinha, CEO & managing director, Tata Power said, “We ended FY22 on a high note, with our 10th consecutive quarter of PAT growth, fueled by broad-based growth across all our business clusters comprising generation, transmission, distribution including Odisha and renewables. Our proven track record in the renewable energy space has attracted reputed global investors (BlackRock Real Assets and Mubadala) to join us in speeding up India’s transition to green energy.”
During the previous year, the company had sold its Strategic Engineering Division to Tata Advanced Systems (TASL) and had recognized contingent consideration of Rs 468 crore based on future expected orders to be received. During the quarter ended 31 March 2022, the company reassessed the fair value of the contingent consideration receivable and recognized the impairment loss of Rs 468 crore as an exceptional item.
The company maintained the net debt to equity ratio at 1.5 despite capex undertaken for growth in Renewables and T&D businesses through working capital management.
Tata Power is one of India’s largest integrated power companies and together with its subsidiaries and jointly controlled entities, has an installed/managed capacity of 13,635 MW. The company has a presence across the entire power value chain – generation (renewable, hydro and thermal power), transmission & distribution, coal & freight, logistic, trading and consumer-facing solar rooftop and electric vehicle charging businesses.
What Should Investors Do Now?
Tata Power could act as a safe haven in today’s context despite elevated capital expenditure, said CLSA. The brokerage firm, however, has maintained its ‘sell’ rating on shares of Tata Power.
Kotak Institutional Securities in its note said: “Tata Power’s consolidated results were not able to deliver on key expectations (1) coal earnings did not fully capitalize on rising coal prices due to change in royalty/taxation as well as export constraints, (2) Mundra continues to be bogged down by higher under-recovery, and (3) margins for EPC business came under pressure. Management is hopeful that earnings constraints for the quarter are transient, and the company will report stronger earnings going forward. Maintain SELL rating and unchanged Fair Value of Rs220/share.”
Analysts at Sharekhan said: “Q4FY22 consolidated adjusted PAT grew by 66 per cent y-o-y to Rs. 653 crore (4% above our estimate) supported by higher standalone profits (rise in dividend income and tax benefit on CGPL merger) and good performance by renewable energy generation business offsetting lower coal profit and weak solar EPC margin. Coal mining business disappointed as PAT declined by 36 per cent q-o-q to Rs. 397 crore as January sales was restricted to domestic Indonesian customer at capped price of $70/tonne and lower sales volume (down 21 per cent q-o-q) because mine operation got impacted due to heavy rains in March. We maintain Buy on Tata Power with an unchanged PT of Rs. 315. At CMP, the stock trades at 3.2x/2.9x FY23E/FY24E P/BV.”
Santosh Meena, Head of Research, Swastika Investmart Ltd., “Tata Power Ltd. has delivered a decent set of no., albeit below street’s expectations. The biggest disappointment has been the Coal Related business, the division has posted a loss of Rs. 178 crores this quarter compared to a Rs 28 crores loss in Q4 2021. However, the management expects improved performance in the next 6 months, as there are signs of respite from the Mundra issue. The stock price had increased substantially from 238 to about 289 in the first week of April, i.e. a 21 per cent return in just a week!! Post that, the stock is in a downtrend due to a lower than the expected valuation of renewable business’s stake sale, weak market sentiments, and high valuations. However, India is a power-deprived country and the Indian power demand is on the cusp of exponential rise due to rising population, increase temperatures, higher urbanization, an adaptation of EVs, etc. We are positive about Tata Power because of its integrated nature of operations and a diversified portfolio of renewable and non-renewable assets. The current price provides a good entry point for the long-term investors.”
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