ICICI Securities

Tata Power (Buy)

CMP: ₹64.65

Target: ₹87

Tata Power, through its wholly-owned subsidiary Khopoli Investments, announced divestment of its entire 50 per cent stake in Cennergi (Pty) Ltd, a South African joint venture. The proposed buyer is Exxaro (the current JV partner), a leading South African coal producer, which will become the 100 per cent owner of Cennergi. The consideration amount for the proposed sale is $106 million (about ₹740 crore) and is expected to be completed by Q3FY20. We expect this transaction, along with other anticipated divestments, to aid in partial repayment of Tata Power’s non-core debt resulting in an earnings CAGR of 29 per cent over FY20E-FY21E with an underlying EBITDA of about ₹9,900 crore growing at 5 per cent CAGR. We maintain our BUY rating on Tata Power with a target price of ₹87/share; the stock is trading at 0.9x FY21E P/BV.

About Cennergi: Cennergi owns two wind farms in South Africa — Amakhala Emoyeni (with a generation capacity of 134.4 MW and 95 per cent shareholding) and Tsitsikamma Community Wind Farm (generation capacity: 95.3 MW, shareholding: 75 per cent). Each of them have 20-year PPA with the state power utility Eskom. Tata Power currently has 50 per cent holding in Cennergi and has invested ₹390 crore in it till date. Thus, the sale will be at 1.9x its investment.