TATA POWER COMPANY
Reco price: Rs 1,303
Current market price: Rs 1,415.30
Target price: Rs 1,500
Upside: 6%
Brokerage: Ambit Capital
Tata Power Company (TPC) has obtained open-access approvals to distribute electricity to suburban Mumbai thereby, enhancing its distribution strengths and enabling higher ROEs. Further, since Reliance Infra has not renewed its power purchase agreement (PPA), TPC has a 500 MW uncommitted generation capacity. Having secured the fuel supply would help TPC operate all its plants optimally. Moreover, going ahead, its fuel mix would change from 31 per cent liquid fuel capacity to 46 per cent imported coal-based capacity, simultaneously morphing from a predominantly distribution entity to one with presence in all the key segments of the power sector value chain.
It is estimated that TPC will need Rs 18,700 crore in the next four years, with equity of Rs 4,956 crore and debt of Rs 13,745 crore. Only Rs 2,678 crore of that their requirement is yet to be tied-up. The brokerage believes that this scenario would ease the recent funding pressure of TPC. TPC’s existing investments are valued at Rs 5,399 crore. Out of this, investments in the Tata group telecom companies are worth Rs 3,700 crore (Rs 156/share). These investments would provide cushion for TPC’s incremental; funding requirements. The Brokerage initiates a hold on TPC with a price target of Rs 1,500. However, key risks include fuel price and shipping venture risks.
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