Buy This Tata Group Multibagger Stock For A Target Price of Rs 315: Sharekhan

Tata Power is India's largest power producing company, with a market capitalization of Rs 92,600.94 crore. The company's shares rose from Rs 104.45 on April 7, 2021 to Rs 288.85 on April 6, 2022, 3:30 p.m. IST, representing a multibagger return of 176.54 percent in a year. The stock is up 29.30 percent year to date (YTD), and it has increased by 62.50 percent in the previous six months. The stock has risen 33.60 percent in the past month and 20.93 percent in the previous five days. Sharekhan has issued a buy call on the stock with a target price of Rs. 315, implying that the stock has more potential upside.

Investment rationale for Tata Power Company Limited (TPCL)

According to Sharekhan "Recently, the NCLT (Mumbai bench) has approved Scheme of Arrangement between Coastal Gujarat Power Limited (CGPL) and Tata Power for the merger of CGPL with Tata Power Standalone with effect from April 01, 2021. The merger would simplify the group holding structure and aid future growth, through fiscal consolidation and strengthening of balance sheet. The merger will provide a massive tax benefit to the parent given ~Rs14,000 crore accumulated loss at Mundra UMPP in the last 11 years due to adverse coal price and currency movements. Potential lower tax outgo and better refinancing terms would result in earnings upgrades of 10% over FY23-24 for Tata Power."

The brokerage has said "Additionally, Tata Power is in talks with Gujarat government (~1,805 MW PPA - 45% of total capacity of Mundra UMPP) for full pass through of fuel cost at its Mundra UMPP and any success on this front would significantly add to its PAT and valuation. Media reports are indicating BlackRock and Mubadala (UAE sovereign Fund) may invest $500 million and $200 million respectively in Tata Power's renewable energy (RE) business. Induction of strategic investor would help unlock value from RE business (media articles indicate a valuation of $5 billion) and help in balance sheet deleveraging. Potential value unlocking from RE business is a catalyst for Tata Power."

"We expect Tata Power's PAT to clock 36% PAT CAGR over FY21- 24E led by sustained growth and strong execution at solar EPC (robust order book of Rs. 11,076 crore as of December 2021), focus to shift towards RE projects (target to increase the RE portfolio to 15 GW by 2025 and 25 GW by 2030 from 4 GW currently), ramp-up of Odisha discoms, new investment in power transmission and tax benefit from CGPL merger with the parent," the brokerage has claimed.

Buy for a target price of Rs. 315

The brokerage has said in a note that "TPCL's focus on business restructuring (CGPL merger), focus on high growth RE business and entry in to power transmission) and balance sheet deleveraging plan would play a crucial role for sustained earnings growth and improved earnings quality (expect RoE to improve to 11.7% in FY24E versus only 6.1% in FY21). In addition, management's business restructuring plans to increase share of high growth RE business would drive sustained improvement in ESG scores and RE portfolio monetisation to help unlock value. Hence, we maintain a Buy on Tata Power with a revised PT of Rs.315. At CMP, the stock is trading at 3.3x/3x FY23E/FY24E P/BV."

Disclaimer

The stock has been picked from the brokerage report of Sharekhan. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.