Renewables, T&D Segments To Lead Tata Power’s Growth, Say Analysts
Here’s what analysts have to say about Tata Power’s growth trajectory.
Tata Power Co. could see its next leg of growth transformation driven by renewable energy, and transmission and distribution segments, according to analysts.
The renewables segment will likely lead the new wave of growth “creating unicorns within”, Edelweiss Research said in its investor note dated Aug. 24. The transmission and distribution vertical also holds growth potential for the power company, it said.
Besides, the introduction of power rules over the last 12 months and potential rollout of the Electricity Amendment Act could prove to be a “game changer” to bring discipline to the power sector while paving the path for higher privatisation opportunities, Edelweiss said.
Tata Power is back in the transmission sector after a decade, the brokerage said, citing recent project wins worth Rs 7,000 crore over the last four months.
ICICI Securities said, “The long-term potential of the company’s businesses is good, especially its renewables and distribution businesses, and that the company is the best-placed private player in the power sector, with businesses across the value chain and backward integration.”
The Tata Group-backed power producer charted out a growth strategy in its analyst meet recently. It aims to beef up its utility-scale capacity to more than 20 gigawatts by fiscal 2027, adding 3 GW of capacity annually over the next five years, ICICI Securities said in its investor note on Thursday.
Given its established green energy unit Tata Power Renewable Energy Ltd. being cash-rich after recent investments, the renewable energy bidding success rate could improve, the ICICI note said.
Shares of Tata Power rose more than 1.5% during the day, but erased all gains to close 0.04% down.
Of the 23 analysts tracking the company, nine maintain a ‘buy’, three suggest a ‘hold’ and 11 recommend a ‘sell’, according to Bloomberg data. The 12-month consensus price target implies a downside of 1.5%.
Here’s what analysts have to say about Tata Power’s growth trajectory:
Edelweiss
Retains ‘hold’ with a target price Rs 250 apiece.
Tata Power’s mighty transformation is gaining momentum and provides a big run for growth.
Remains structurally positive. Tata Power has chartered out a strong growth trajectory of at least 15% compounding for the next couple of years.
Renewable to lead new wave of growth while creating unicorns within. The management targets a 4X growth in renewables energy portfolio, with 3.5x, 6.5x and 7x growth utility in EPC, rooftop solar and solar pumps businesses.
Tata Power is doing well on electric vehicle charging with new tie-ups and partnerships. Utilisation beyond 10% is key to boost profitability, especially in public chargers.
Transmission and distribution opportunity building blocks in place to unleash growth.
Capital-raise or equity infusion is no deterrent for growth and stake sale or promoters infusion or non-core divestments could be at play.
Given 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.
ICICI Securities
Downgrades to ‘add’ from ‘buy’ due to stock price run-up, keeps target price at Rs 262 apiece.
Tata Power has a clear focus on clean and green growth. As much as 80% of the estimated Rs 1 lakh crore capex over fiscal 2023 through 2027 will be on green business.
The company aims to grow its revenue and profit after tax by three and four times, respectively, from fiscal 2022 levels of Rs 42,600 crore and Rs 2300 crore, respectively.
Expects Tata Power to become one of the key players in the transmission and distribution space, participating in upcoming discom privatisation as well as transmission bids.
Debt reduction and elevated coal prices paint a positive picture for Tata Power’s Gujarat unit CGPL, and coal businesses.
Business at Tata Projects Ltd. and Tata Power Solar Systems Ltd. should turn around from second quarter onwards as provisioning and write-offs are now complete for both these units.
Easing of commodity prices and domestic contract manufacturing arrangements for Tata Power Solar will also help.
