Tata Power: Antique ups target, shares 3 reasons why Tata group stock may outperform sector
Tata Power shares: Antique Stock Broking said Tata Power houses 4.3 GW of operational solar, wind, and hybrid assets and that the company may add 10 GW before FY27, entailing a capex of Rs 60,000 crore.
- Jan 10, 2024,
- Updated Jan 10, 2024 10:04 AM IST
Antique Stock Broking on Wednesday said it expects Tata Power Ltd shares to outperform the power sector after a year of underperformance. The Tata group stock 65 per cent rose in the last one year against the sector’s median performance of 94 per cent. Antique Stock Broking cited three reasons for its bullish view. It said Coastal Gujarat Power Limited (CGPL), Tata Power's wholly-owned subsidiary, even under section 11, continues to break even because its share in coal profits is adjusted against tariff. Stock investors, Antique said, have failed to appreciate the possibility of optimal mix of short-term trades given higher dark spreads to sustain.
In addition, Antique Stock Broking said consolidated renewable energy (RE) can deliver Rs 10,000 crore Ebitda by FY27 against Rs 3,400 crore in FY24E. Lastly, it felt that the lowest capital outlay per MW for pumped hydro entails higher platform valuation. By including the option value of selling 30 per cent of CGPL in the spot market (including the PPA penalty), it has revised its target price to Rs 450 per share from Rs 422 earlier while maintaining a 'BUY' on the Tata Power stock.
"We revise our TP to Rs 450 and maintain BUY. We have not factored in the growth of regulated equity, where the company is exploring all possibilities. We have added the scope of potential windfall gains from spot market sales from CGPL, assuming PPA negotiations fail through. We assume this could be 30 per cent of total PPA, which is exposed to PUnjab, Haryana and Rajasthan," it said.
Antique Stock Broking said Tata Power houses 4.3 GW of operational solar, wind, and hybrid assets and that the company may add 10 GW before FY27, entailing a capex of Rs 60,000 crore.
The 14 GW assets can contribute Rs 8,400 crore in Ebitda. Add solar EPC, rooftop, and EV charging stations, consolidated RE can easily march past Rs 10,000 crore, Antique said. At a blended EV/Ebitda of 10 times, the consolidated RE can be argued at an EV of Rs 1 lakh crore, it said adding that knocking off the Rs 45,000 crore of debt, the arguable valuation for consolidated RE is Rs 172 per share. This is against Rs 110 per share based on Blackrock Mubadala transaction for 10 per cent in 2022.
Antique said Tata Power is eyeing 12 GW in pumped hydro in the western region of India, where the land bank is in excess of 36,000 acres. PSPs are established or proven models, costing less than Li-ion batteries, it said. Tata Power is working on 1 GW Bhivpuri PSP (6 GWh), which will cost Rs 4,700 crore, which is at the lower end of the cost curve.
Tata Power will start construction in FY24 and complete it before FY27E. Similarly, Tata Power is keen on working on 1.8 GW Shirawata PSP (10.8 GWh) with a capital investment of Rs 7,800 crore, expected to be completed in 3.5 years and commissioned by 2028. The additional sites are 3 GW of the Nenavali project, 3 GW of the Kataldhara project, and 3 GW of the Poltapali project, it said.
Antique noted CGPL supplies power at an adjusted tariff, lower than traditional cost.
"Should CGPL sell 30 per cent of power in the spot market (that is, the portion of PPA with Rajasthan, Haryana, and Punjab, states that finds the Rs 5.5/unit tariff expensive), CGPL has the option to pay the break-up fee of Rs 140 crore per annum (30 per cent share of the full break-up of PPA). Against which CGPL can earn windfall gains of Rs 2000 crore pre-tax profit, assuming dark spread remains Rs 3 per unit and fixed charges are Rs 0.9 per kWh. As we write, there are pan-India winter evening spot power blocks testing the regulatory upper cap of INR 10/ kWh, yielding a dark spread of Rs 5–6 per kWh," it said.
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Antique Stock Broking on Wednesday said it expects Tata Power Ltd shares to outperform the power sector after a year of underperformance. The Tata group stock 65 per cent rose in the last one year against the sector’s median performance of 94 per cent. Antique Stock Broking cited three reasons for its bullish view. It said Coastal Gujarat Power Limited (CGPL), Tata Power's wholly-owned subsidiary, even under section 11, continues to break even because its share in coal profits is adjusted against tariff. Stock investors, Antique said, have failed to appreciate the possibility of optimal mix of short-term trades given higher dark spreads to sustain.
In addition, Antique Stock Broking said consolidated renewable energy (RE) can deliver Rs 10,000 crore Ebitda by FY27 against Rs 3,400 crore in FY24E. Lastly, it felt that the lowest capital outlay per MW for pumped hydro entails higher platform valuation. By including the option value of selling 30 per cent of CGPL in the spot market (including the PPA penalty), it has revised its target price to Rs 450 per share from Rs 422 earlier while maintaining a 'BUY' on the Tata Power stock.
"We revise our TP to Rs 450 and maintain BUY. We have not factored in the growth of regulated equity, where the company is exploring all possibilities. We have added the scope of potential windfall gains from spot market sales from CGPL, assuming PPA negotiations fail through. We assume this could be 30 per cent of total PPA, which is exposed to PUnjab, Haryana and Rajasthan," it said.
Antique Stock Broking said Tata Power houses 4.3 GW of operational solar, wind, and hybrid assets and that the company may add 10 GW before FY27, entailing a capex of Rs 60,000 crore.
The 14 GW assets can contribute Rs 8,400 crore in Ebitda. Add solar EPC, rooftop, and EV charging stations, consolidated RE can easily march past Rs 10,000 crore, Antique said. At a blended EV/Ebitda of 10 times, the consolidated RE can be argued at an EV of Rs 1 lakh crore, it said adding that knocking off the Rs 45,000 crore of debt, the arguable valuation for consolidated RE is Rs 172 per share. This is against Rs 110 per share based on Blackrock Mubadala transaction for 10 per cent in 2022.
Antique said Tata Power is eyeing 12 GW in pumped hydro in the western region of India, where the land bank is in excess of 36,000 acres. PSPs are established or proven models, costing less than Li-ion batteries, it said. Tata Power is working on 1 GW Bhivpuri PSP (6 GWh), which will cost Rs 4,700 crore, which is at the lower end of the cost curve.
Tata Power will start construction in FY24 and complete it before FY27E. Similarly, Tata Power is keen on working on 1.8 GW Shirawata PSP (10.8 GWh) with a capital investment of Rs 7,800 crore, expected to be completed in 3.5 years and commissioned by 2028. The additional sites are 3 GW of the Nenavali project, 3 GW of the Kataldhara project, and 3 GW of the Poltapali project, it said.
Antique noted CGPL supplies power at an adjusted tariff, lower than traditional cost.
"Should CGPL sell 30 per cent of power in the spot market (that is, the portion of PPA with Rajasthan, Haryana, and Punjab, states that finds the Rs 5.5/unit tariff expensive), CGPL has the option to pay the break-up fee of Rs 140 crore per annum (30 per cent share of the full break-up of PPA). Against which CGPL can earn windfall gains of Rs 2000 crore pre-tax profit, assuming dark spread remains Rs 3 per unit and fixed charges are Rs 0.9 per kWh. As we write, there are pan-India winter evening spot power blocks testing the regulatory upper cap of INR 10/ kWh, yielding a dark spread of Rs 5–6 per kWh," it said.
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