Buy This Tata Group Stock For 175% Dividend & Good Upside Potential

For FY-22, the Board of Tata Power Company Ltd (TPCL) has recommended a dividend of Rs 1.75 per share of Rs 1 each i.e. 175 per cent to shareholders for the year ended March 31, 2022. This is subject to shareholder approval at the Company's upcoming 103rd Annual General Meeting (AGM), which will be placed on July 7, 2022. Following Tata Power's impressive performance in Q4FY22, Sharekhan has issued a buy call on the stock with a target price of Rs. 315.

Q4FY22 performance

The brokerage firm Sharekhan in its latest report has said "Tata Power Company Limited's (TPCL's) Q4FY22 adjusted PAT of Rs. 653 crore (up 66.3% y-o-y) was 4% above our estimate of Rs. 632 crore primarily on the account of higher dividend income and tax benefit from CGPL merger in standalone business (PAT at Rs. 1770 crore versus net loss of Rs. 159 crore in Q4FY21) and good performance from RE business (PAT grew by 64% y-o-y to Rs. 280 crore) led by higher profits (up 2x y-o-y to Rs. 286 crore) from RE generation portfolio partially offset by decline in solar EPC margin to only 2.1% in Q4FY22 versus 6.2% in Q4FY22 due to higher module cost."

The brokerage has also highlighted that "Coal mining business performance was disappointing with 36% q-o-q decline in PAT at Rs. 397 crore owing to lower volumes of 10.4 mt (down 21% q-o-q) and lower gross margin at $28.3/tonne as in January sales was restricted to domestic customers at capped price of $70/tonne and March volumes were impacted by heavy rainfalls. Mundra reported net loss of Rs. 484 crore (versus net loss of Rs. 277 crore in Q4FY21 and Rs. 458 crore in Q3FY22) due to high fuel under-recoveries at Rs. 1/unit (versus Rs. 0.72/Rs. 0.6 per unit in Q4FY21/ Q3FY22) and lower PLF of 25% (versus 74%/31% in Q4FY21/Q3FY22). All four Odisha discoms (North, West, Central and South) remained profitable with combined with aggregate PAT of Rs. 109 crore versus only Rs. 42 crore in Q4FY21."

Buy for a target price of Rs. 315

The brokerage has claimed that "TPCL's focus on business restructuring (CGPL merger) and focus on high growth RE business and entry in to power transmission would play a crucial role for sustained earnings growth and improved earnings quality (expect RoE to improve to 12% in FY24E versus only 7.8% in FY22). Additionally, management's business restructuring plans to increase share of high growth RE business would drive sustained improvement in ESG scores. Moreover, a potential agreement with states for full pass-through of fuel cost would improve earnings growth outlook and support balance sheet deleveraging plan. Hence, we maintain a Buy on Tata Power with an unchanged PT of Rs.315. At CMP, the stock is trading at 3.2x/2.9x FY23E/FY24E P/BV."

Slower-than-expected ramp-up of RE portfolio and expansion in distribution business, lower-than-expected profitability in Solar EPC business, and volatility in international coal prices remain the key risks for the stock according to Sharekhan.

Disclaimer

The stock has been picked from the brokerage report of Sharekhan. 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. Goodreturns.in advises users to check with certified experts before taking any investment decisions.