Broker's call: Torrent Power

| Updated on December 19, 2019

Motilal Oswal Research

Torrent Power (Buy)

CMP: ₹275.6

Target: ₹346

Key takeaways: 1) Torrent Power has not tied-up new gas supplies for its UnoSugen PPA (effective from July 1, 2019). Instead, the company is a) making use of gas tied up for Sugen (@$6.5/mmbtu till December 2020); and b) buying from spot, as required.

2) TPW believes that the natural gas market would remain oversupplied, and thus it would increase sourcing from spot contracts. Longer-term contracts (generally up to 1.5 years) could be entered, but pricing is done with reference to Brent (slope of about 10-11 per cent) and resulting in higher cost. According to our oil & gas sector analyst, the glut in global gas supply is likely to continue, given a) increasing gas supply from the US and Qatar; and 2) plateauing consumption in China along with possible lower imports from Japan.

Outlook for Torrent Power’s gas plants has improved with low LNG prices, sourcing of imported LNG and the offtake of UnoSugen PPA. This, along with continued capitalisation within regulated distribution, AT&C loss reduction in franchise business and debt repayment, would drive earnings CAGR of 19 per cent over FY19-22. We maintain our ‘Buy’ rating with a target price of ₹346/share.

Published on December 20, 2019

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