Buy This Multibagger Tata Group Stock For Potential Gains Up To 16%, Says ICICI Securities

Tata Power Company (TPWR) reported another strong quarterly performance in Q2FY23 buoyed by higher profits from coal and Mundra businesses, recovery in profits of TPSSL and Tata Projects, and strong performance of distribution businesses. On consolidated basis, the company's reported revenue for the quarter, at Rs141.5bn, was up 49% YoY mainly due to higher power sales across discoms and higher revenue from coal businesses. Reported PAT was up 85% YoY at Rs9.4bn (TPWR's share of profit was Rs8.2bn, up 94% YoY).

Leading brokerage firm ICICI Securities recently published a report on Tata Power Company Limited, where the brokerage maintains its buy call with a revised target price of Rs 262 per share. According to the brokerage's given target price, the stock can give a potential return of up to 16%.

Stock Outlook & Returns

The stock last traded at Rs 226 apiece on NSE as compared to its previous close of 225.05 apiece, a 0.42% gain. As on 31st October 2022, the large-cap Tata Group company has a market capitalisation of Rs 72,214.67 crore. 

The shares in the past 1 week jumped, giving a positive return of 3.2%. The stock in the past 1 and 3 months has given 4.39% and 1.85% positive returns, respectively. Over the past 1 year, the stock has given 5.46% positive returns. It has given 281.11% multibagger returns in 3 years and 166.2% multibagger returns in 5 years, respectively.

The stock's 52-week high level was recorded on 07 April 2022 at Rs 298.05 and its 52-week low on 20 June 2022 at Rs 190, respectively. 

Another quarter of strong revenue and profit growth

For Q2FY23, TPWR's reported revenues (consolidated) were up 49% YoY at Rs141.5bn, while reported consolidated PAT was up 85% YoY at Rs9.4bn (TPWR's share of profit was Rs8.2bn, up 94% YoY). Underlying EBITDA was Rs32.6bn, up 38.5% YoY. GreenCo EBITDA increased by 4% YoY to Rs7.4bn. Main factors impacting Q2FY23 performance were: 1) good performance of all discoms due to higher power demand (Odisha discoms posted cumulative profit of Rs620mn); 2) higher profit from CGPL + coal companies on both QoQ and YoY basis as well as sale of power under section-11 of the Electricity Act; 3) RE capacity addition and good growth in all RE businesses; 4) Rs500mn profit for TPSSL vs Rs330mn loss in Q1FY23; 5) turnaround in Tata Projects, which posted profit of Rs60mn vs loss of Rs2.2bn in Q1FY23 and consecutive quarterly losses since Q1FY22. TPWR's net debt at Q2FY23- end reduced to Rs395bn despite capex of >Rs30bn during H1FY23. While receivables remained high (but under control) at Rs93.6bn, we expect it to decline going forward as disputed amounts are being paid by the relevant discoms in instalments. 

CGPL and coal companies' profits increase

Substantial increase in Mundra PAF (92% in Q2FY23 vs 28% in Q2FY22) and higher coal prices were the main factors aiding increase in TPWR's PAT, both QoQ and YoY. CGPL has been booking sales under section-11 of the Electricity Act from 5th May'22 onward. This notification, which has been extended up to 31st Dec'22, provides for full compensation of cost of power generation by the buyer along with a certain profit, to be determined by the regulator (CERC). The MoP has given an interim tariff based on which CGPL has been billing the off-takers. For capacity charges, CERC's recent favourable order helped recognise Rs4.6bn additional revenue during Q2FY23 (Rs1.5bn pertaining to Q1FY23). We believe, once CERC approves the tariff, Rs4bn-5bn under-recovery of variable charges may be reversed in the coming quarters resulting in further increase in profits. 

Valuations and outlook

"We revise our estimates for FY23 and FY24 factoring-in the higher coal prices and earnings on sale of power from Mundra plant under section-11 of the Electricity Act. We maintain BUY rating and our SoTP-based target price of Rs262. The stock is currently trading at FY24E P/E of 23.7x and P/B of 2.6x," the brokerage has said. 

Disclaimer

The stock has been picked from the brokerage report of ICICI Securities. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.