New Delhi, July 28 -- Tata Power company reported strong performance in Q1FY23 with high revenue and profit growth. The net profit was up 103% year-on-year (YoY), boosted by higher profits in the coal business, and despite losses booked for Tata Projects and TPSSL, as well as the negative impact of conservative accounting for CGPL.
"Tata Power focus on business restructuring (CGPL merger) and 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 12.1% in FY2024E versus only 7.8% in FY2022)," said Sharekhan. The brokerage has maintained its Buy rating on Tata Power shares with a revised price target of Rs.260.
In addition, management's business restructuring plans to increase the share of high-growth RE business would drive sustained improvement in ESG scores. Turnaround of Mundra UMPP and higher profitability at Odisha discoms are catalysts, the brokerage added.
As per the company, the first tranche of Rs.20 bn from TPREL stake sale is expected in the next few weeks, which will immediately provide growth capital to the company, making it more competitive in auctions, said analysts at another domestic brokerage house ICICI Securities.
For CGPL, tariff determination by CERC as per section-11 of the Electricity Act will aid reduction in under-recoveries. Further, supplementary PPA, if signed with Gujarat, will be a major positive, they added.
"Since provisioning and write-offs are now complete for both Tata Projects and TPSSL, we believe they should turn-around from Q2FY23 onward. Easing of commodity prices and domestic contract manufacturing arrangements in case of TPSSL will also help," ICICI Securities said while maintaining Buy rating on the stock with a target price of Rs.262 per share.
Tata Power CEO and MD Praveer Sinha said the company's all business clusters namely generation, transmission, distribution and renewables performed well. "This is aptly reflected in our 11th consecutive quarter of PAT (profit after tax) growth. We have a robust growth trajectory with stable long-term cost structures and competitiveness across businesses. As a future-ready EaaS (The Energy Storage as a Service ) company, we are well poised to contribute towards India's green energy transition," he said.
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