The Hindu Business Line : Private placement buzz keeps Tata Power aloft

RUMOURS of a private placement have been aiding the stock of power generation and distribution player Tata Power Company to sustain its upward momentum on the bourses.

As per the market grapevine, the company is reportedly planning a placement at a huge premium to the market price. There is speculation that the proposed placement will take place anywhere between Rs 450 - Rs 500.

"Tata Power had recently expressed its intent to develop a 1,000 MW plant in Uttar Pradesh. If this has to happen, equity dilution will have to take place,'' an analyst with a leading brokerage reasoned.

Notwithstanding the placement rumours, brokers also attribute the current interest in the stock to the fact that it is trading at a discount to Reliance Energy. "The market is playing catch and at these levels there is no denying that Tata Power is attractively valued,'' said a broker.

Mr Jitendra Marchino, alternate investment analyst with Edelweiss Capital, is of the view that at these levels Tata Power is attractively valued in comparison to Reliance Energy.

"There is a wide gap between the two in terms of PE ratio. Tata Power is quoting at 12 PE while Reliance Energy is quoting at 25 PE. We believe that Reliance Energy valuations have been overstretched and expect Tata Power to out-perform in the short term,'' he added.

According to Mr Rajiv Thakkar, head of research, Parag Parikh Securities, power stocks have been in the limelight following the unbundling of the generation and distribution activities.

"The passage of the Electricity Bill has heralded good prospects for the power sector and one sees a bigger role for the private entities now,'' he added. FII interest in power stocks has also been reportedly growing with many a foreign fund raising their exposure to these stocks. Analysts maintain a transparent management makes Tata Power an attractive option. Commenting on the fact that the company has applied for a trading licence, analysts maintain that going forward with a number of players involved in power trading, margins could go down. "This may not ensure sustainable revenue. Growth will come via pure trading and distribution activities,'' an analyst said. Tata Power's main line of business is the generation, transmission and distribution of power.

On the NSE, the stock ended the day at Rs 405.35 up 2.5 per cent with around 31.28 lakh shares traded.