Tata Power Falls 7% To Hit Two Month Low. Here Why?

Tata Power Co shares tumbled as much as 7% to a two-month low, reflecting a drop in local equities markets.

The stock fell to a low of Rs 223 lowest reached on March 8, 2022. Tata Power has dropped 20% since April 6, while the Sensex and Nifty have both lost roughly 9%.

Tata Power’s adjusted profit after tax (PAT) of Rs 653 crore (up 66.3 percent year on year) was 4% higher than the consensus estimate of Rs 632 crore, owing to higher dividend income and tax benefits from the Coastal Gujarat Power Ltd (CGPL) merger in standalone business (PAT at Rs 1770 crore versus net loss of Rs 159 crore a year ago) as well as strong performance from the renewable energy (RE) business.

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Because January sales were confined to domestic clients at a ceiling price of $70/tonne and March volumes were hampered by severe rainfall, coal mining performance was dismal with a 36 percent sequential reduction in PAT at Rs 397 crore.

Mundra recorded a net loss of Rs 484 crore due to low plant load factor and excessive fuel under-recoveries at Rs 1/unit.

“Tata Power’s focus on company restructuring (CGPL merger), high-growth renewable energy industry, and entry into power transmission will be critical for sustained profits growth and better earnings quality (expect return on equity to improve to 12 percent in FY24 versus only 7.8 percent in FY22). Furthermore, management’s intentions to restructure the company to boost its share of the high-growth RE market would result in a long-term improvement in ESG (environmental, social, and governance) rankings. Furthermore, a possible agreement with states for complete fuel cost pass-through would increase profits growth prospects and help the balance sheet deleveraging plan “In a note to investors, Sharekhan stated.

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Tata Power is in advanced talks with Gujarat Urja Vikas Nigam and other states to implement supplemental power purchase agreements (PPAs) for complete coal cost pass-through beginning January 1, 2022, according to the company’s management.

According to them, the company has received a 10-year renewal of its Indonesian coal mining licence with updated royalty and taxes regulations, which would have a mainly neutral impact on coal business profitability.

As it considers contract manufacturing in India and new project elements in altered price terms for solar modules, management expects the solar engineering, procurement, and construction (EPC) margin to increase.

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“Based on our SOTP (sum of the parts) assessment, we value Tata Power RE assets at Rs 144 per share in FY24E, while other non-RE companies are valued at Rs 114. Due to an 18% drop in the stock price since April 22, we raise our recommendation to accumulate from reduce and keep our target of Rs 258. “In a note to investors, Elara Capital stated.

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