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Edelweiss Securities
Tata Power (Buy)
Target: ₹95
CMP: ₹71.60
Tata Power (TPCL) is on the cusp of a mega transformation. It is shedding the burden of legacy via deleveraging and restructuring, and realigning the business model to new ESG trends, which are both niche and scalable, to harness growth.
While Street’s fixated on legacy troubles and valuing TPCL accordingly, we argue the company has outlived its past and is primed for sustainable and clean growth.
We plumb TPCL’s new opportunities ($87 billion) —renewable energy (RE), distribution and EV — and its positioning thereof, and make a case that TPCL is powering ahead on a sustainable growth path (25 per cent CAGR), which would drive a shift in how it is perceived and eventually spur its re-rating. Retain ‘Buy’ with a TP of ₹95 (up from ₹75).
We forecast the sunrise business PAT mix at 40–45 per cent by FY23. Our proprietary work pegs the sunrise market potential at $59 billion (2x conventional) over the next three–four years, but TPCL’s market share thereof would probably lag its share in the conventional market. Overall, more than 70 per cent of the incremental PAT (excluding interest cost reduction) would be sunrise driven.
Renewable InvIT delay, coal price surge and higher AT&C losses are a few key risks.
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