10 November 2020
2QFY21 Results Update | Sector: Utilities
Tata Power
Estimate change
TP change
Rating change
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
TPWR IN
2,705
181 / 2.4
63 / 27
-3/62/-12
1085
CMP: INR57
TP: INR65 (+15%)
Buy
Beat as EPC businesses recover
Risk reward favorable; maintain Buy
Tata Power (TPWR)’s results reflect the recovery in its EPC businesses and
better working of its Mundra-Coal JV hedge. Adj. PAT stood at INR3.0b and
was significantly higher v/s our est. of INR2.3b.
Divestment-related measures (international shipping business, Cennergi,
Arutmin, and Tata SED) and the infusion of INR26b from promoter has
aided debt reduction. As EPC businesses recover and we build in the
expectation of some normalization in WC by FY22, we view the risk-reward
as favorable. 1) Possible benefit from the merger of CGPL and Tata Power
Solar with itself, 2) favorable InvIT valuations, and 3) tariff hike approval at
Mundra provide upsides.
Maintain Buy, with TP of INR65/sh.
Profits reflect recovery in EPC businesses
Adj. PAT of INR3.0b (previous year: INR3.5b) was 28% ahead of our est. of
INR2.3b. The beat on our estimates was led by better-than-expected
recovery in its EPC businesses (Solar EPC and Tata Projects), the better
working of the Mundra- Coal JV hedge, and profitability at CESU.
Tata Power Solar and Tata Projects reported combined profit of INR1.1b
(v/s loss of INR0.6b in 1QFY21).
Mundra (EBITDA) and coal JVs (PAT)
increased to INR5.0b (v/s INR4.0b in
2QFY20) on lower cost of production at coal JVs and some lag benefit at
Mundra.
RE (ex-standalone)
PAT was broadly flat at INR4.6b.
Net debt (excl. restricted cash at CESU) declined to INR407b (v/s INR471b at
FY20), led by the monetization of Cennergi and the international shipping
business as well as infusion of INR26b from promoter.
Management commentary highlights
TPWR’s management noted the process for the merger of subs with the co
has begun. The hearing for the merger of Af-Taab has commenced, while
the NCLT filing is underway for CGPL & TPSSL.
The co. is in talks regarding the Mundra PPA, but there is some difference in
the initial and final terms. The co. is more focused on making Mundra self-
sustainable. At current coal prices, the benefit of a compensatory tariff may
not be substantial.
AT&C losses at CESU stood at 28% (down from ~40% upon takeover).
Debt reduction playing out; view risk reward as favorable at current levels
Net debt declined to INR407b (from INR471b in FY20). Divestment-related
measures (international shipping business, Arutmin, and Tata SED) and infusion
of INR26b from promoter have aided the debt reduction. Debt reduction
should lead to lower interest costs. Moreover, with normalization in its EPC
business and some normalization in WC, we expect EPS to rise at a 7–8% CAGR
over FY20–23. 1) Possible benefit from the merger of CGPL and Tata Power
Solar with itself, 2) favorable InvIT valuations, and 3) tariff hike approval at
Mundra provide upsides.
Maintain Buy, with SOTP-based TP of INR65/sh.
Financials & Valuations (INR b)
Y/E MARCH
2020 2021E 2022E
Sales
291.4 316.3 342.2
EBITDA
79.4 77.0 77.5
Adj. PAT
10.2 10.1 14.0
EBITDA Margin (%)
27.3 24.3 22.6
Cons. Adj. EPS (INR)
3.8
3.2
4.4
EPS Gr. (%)
78.2 -16.1 38.6
BV/Sh. (INR)
66.8 67.7 70.3
Ratios
Net D:E
2.6
1.9
1.8
RoE (%)
5.9
5.1
6.3
RoCE (%)
7.1
7.0
6.9
Payout (%)
41.2 41.2 29.7
Valuations
P/E (x)
15.1 18.0 13.0
P/BV (x)
0.8
0.8
0.8
EV/EBITDA(x)
8.2
8.1
7.9
Div. Yield (%)
2.7
2.3
2.3
FCF Yield (%)
33.6 27.3 26.8
Shareholding pattern (%)
As On
Sep-20 Jun-20
Promoter
46.9
37.2
DII
26.7
31.4
FII
10.9
12.9
Others
15.6
18.5
FII Includes depository receipts
Sep-19
36.2
23.9
24.2
15.7
;
Aniket Mittal – Research Analyst
(Aniket.Mittal@MotilalOswal.com)
13 February 2020
1
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Investors are advised to refer through important disclosures made at the last page of the Research Report.