Tata Stock At Record High, 15% Weekly Gains, Crosses Rs 1 Lakh Crore M-Cap; Brokerage Suggests Buy

Tata Power becomes the sixth firm of Tata Group to cross Rs 1 lakh crore market cap on stock exchanges. On December 8th, the large-cap stock touched a new 52-week high before correcting. Brokerage JM Financial is optimistic about Tata Power as the company's recalibrated strategy involves tapping high-margin group captive RE (renewables) opportunities, exiting low-value businesses, venturing into brownfield pumped hydro storage, and expanding transmission business beyond distribution.

JM's note said, this, coupled with the visible resolution of the Mundra issue, positions the company for accelerated growth.

According to the brokerage, Tata Power has also shifted its focus from low-value solar-powered irrigation pumps to optimise management bandwidth for more lucrative prospects. Among the current 3,760GW of projects under construction, 1,271MW are captive projects, representing 33% of the RE pipeline (which is expected to grow steadily). The recent order from Tata Steel for a 966MW RE-RTC project exemplifies this new strategic direction.

Further, it said, "Considering the escalating power deficit (peak 4.0%/1.4% during YTDFY23/TYDFY24), the recurrent enforcement of Section-11 of the Electricity Act, 2003, stable Indonesian coal prices, and the competitive generation cost (Rs 4.68/kWh from Tata Mundra in contrast to Rs 5.8-5.77/kWh from Adani Power's Mundra), we forecast state discoms (distribution companies) to finalise long-term power purchase agreements (PPAs) before Jun'24 (when the latest extension to Section-11 will expire)."

Also, Tata Power has an ambition of increasing it to 10,000 Ckt km+ in the next 5 years.

Notably, the company has embarked on two brownfield PSP projects totalling 2.8GW - 1GW Bhivpuri PSP and 1.8GW Shirawta PSP; they are scheduled to be completed by CY27/CY28 and entail capex of INR 47bn/ INR 78.5bn respectively. JM's note said, "We believe the company will earn at least Rs 9 million/MW/yearFY28 onwards (akin to lease rentals, also indicated by the management) giving it an advantage of compressed execution time and better returns."

On CAPEX, the brokerage's note said, "Tata Power is estimated to spend Rs 600bn till FY27 across generation, transmission and distribution with major (45%) allocation towards augmenting renewable capacity, a 2x growth vis-à-vis capex during FY20-23."

JM believes the company's growth will gain pace. It said, "We expect a consistent growth trajectory for the company and forecast Revenue/EBITDA/PAT CAGR of 15%/23%/32% by FY26. The company aspires to double the FY23 Revenue/EBITDA/PAT by FY27 which appears ambitious. We would be observing the execution progress and further refinement of strategies before building these targets in our estimates."

Thereby, JM has upgraded its outlook to BUY from HOLD on Tata Power for a target price of Rs 350 per share.

On BSE, Tata Power shares ended at Rs 323.45 apiece down by 0.71% on December 8th. During the trading hours of this day, the stock hit a new 52-week high of Rs 335.80 apiece before investors cashed in their gains.

Despite last-minute selling, Tata Power's weekly upside is to the tune of a whopping 15% from December 4th to 8th. Year-to-date, the stock has zoomed by nearly 53% on BSE.

As of December 8th, the company's market cap stood at Rs 1,03,353.26 crore, making it the sixth company in Tata Group's portfolio to cross the Rs 1 lakh crore mark.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.