Value Pick: Brokerages see upside of 21% in Tata Power shares amid growing demand, improved outlook

On the back of increased power consumption, the power generating and distributing company – Tata Power has touched a peak of pre-covid levels that is 190 giga watts (GW) before summer, and it’s estimated to hit new peak of 215-220 GW during summer months of 2022, this was told by the company’s CEO and MD Praveer Sinha during an exclusive interview with Zee Business. 

The chances of stock price of Tata Power growing are high amid higher power consumption and improved business outlook. Many brokerages now see an upside of up to 21 per cent in the share price on attractive valuations and positive triggers. 

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Axis Securities 

The brokerage has raised its target price to Rs 254 per share, which is an upside of nearly 11.5 per cent post Q3FY23 to factor and is 2x book value for planned equity investment in 4GW solar module and cell manufacturing facility.

Higher value for 30 per cent stake in KPC (favourable coal prices); and rollover of Tata Projects valuation to FY24E earnings. 

Strategic stake sale in RE portfolio (IPP, EPC, manufacturing, EV charging put together) likely in near future and Mundra merger with parent on track, NCLT approval expected soon, the brokerage said. 

Edleweiss 

Tata Power’s business reorientation towards clean energy is gaining heft with 25 per cent profits already accruing from RE. It said, value unlocking through RE monetisation, exit from the coal mining business and Mundra resolution are the key catalysts for the stock in the near to medium term.  

The brokerage maintains Buy stance for a target price of Rs 245 per share, which implies an upside of 7.5 per cent as compared to current market price of Rs 228 per share on the BSE. 

Antique Stock Broking 

The past capital allocation of the company was driven by 39 per cent in coal/CGPL, 32 per cent in regulated business and 29 per cent in renewables. The path ahead will have 49 per cent of regulated business (with 31 per cent coming from T&D) and 32 per cent in renewables.  

Based on the current capital allocation, The brokerage sees the stock surging to Rs 277 apiece, upside of over 21 per cent amid value regulated, generation and other businesses.  

Antique listed negatives for the company in the form of sharp decline in coal prices impacting subs; slower resolution on CGPL, poor exit multiples in InvIT, and systemic slowdown in RE space. 

ShareKhan 

The brokerage maintains a Buy rating on Tata Power with a price target of Rs 275 per share, upside of nearly 21 per cent.  

It said that the sustained near-term high prices of coal, higher execution/margin improvement at solar EPC business and expectation of sustained improvement in financial at Odisha discoms makes the brokerage confident on the company’s long-term earnings growth potential of 36 per cent PAT CAGR over FY21-24E.  

In addition, management’s business restructuring plans to increase share of high growth RE business would drive sustained improvement in ESG score and RE portfolio monetisation to help unlock value, the brokerage said, adding further, the stock is trading at 2.9x/2.6x FY23E/FY24E P/BV.