Stocks

Broker's call: Tata Power (Buy)

| Updated on September 17, 2020 Published on September 18, 2020

CLSA

Tata Power (Buy)

Target: ₹74

CMP: ₹56.70

Indian mid- and small-cap utility stocks rose 4-7 per cent, following the securities regulator's decision to modify the scheme characteristics of $19 billion in multi-cap mutual funds (MCMF) to allocate a higher 75 per cent against 65 per cent of assets in equities, with a minimum 25 per cent each in mid- and small-cap companies.

The start of power reform in Q2FY21 with a blend of liquidity injections and structural measures to fix weak discom financials, renewable-led growth, de-levered balance sheets, growing profitability and inexpensive valuations (20-22 per cent discount to SOTP) are catalysts to buy mid and small-cap utility stocks such as JSW Energy, Tata Power and CESC.

After guiding for 42 per cent y-o-y debt reduction through the divestiture of $2.5 billion in assets in FY21, Tata Power

announced corporate restructuring. This will unleash huge tax breaks.

Tata Power is on track to monetise its 2.6GW in RE assets through a private InvIT. The transfer of assets to the InvIT should allow Tata Power to churn capital and reduce net debt by 39 per cent and improve debt-to-equity from 1.8x to 1x post-InvIT.

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Published on September 18, 2020
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