Shares of Tata Power declined more than 7% to ₹229 apiece on the BSE in Monday’s early deals on a weak market. The Tata Group firm reported an over 31% rise in its consolidated net profit to ₹632 crore in the March 2022 quarter, on the back of 16% rise in revenue at ₹12,085 crore.
“Tata Power’s focus on business restructuring (CGPL merger) and focus on high growth RE business and entry in to power transmission would play a crucial role for sustained earnings growth and improved earnings quality (expect RoE to improve to 12% in FY24E versus only 7.8% in FY22),” said brokerage Sharekhan.
Additionally, management’s business restructuring plans to increase share of high growth RE business would drive sustained improvement in ESG scores. Moreover, a potential agreement with states for full pass-through of fuel cost would improve earnings growth outlook and support balance sheet deleveraging plan, it added. Hence, the brokerage maintained a Buy on Tata Power shares with price target of ₹315.
Though, as per Sharekhan, key risks include slower-than-expected ramp-up of RE portfolio and expansion in distribution business, lower-than- expected profitability in Solar EPC business, and volatility in international coal prices.
“Tata Power is on track with its new RE project wins and big ticket size EPC contracts, although margins is a key monitorable. Also, higher coal prices could lead to an elevated PAT trajectory. We remain structurally positive but are pushed due to rich valuations,” said another brokerage Edelweiss which has maintained ‘Hold’ tag on the multibagger stock with a 12-month target price of ₹265.
Tata Power shares have rallied more than 109% in a year’s period, whereas the scrip is up about 3% in 2022 (YTD) so far.
The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.