Tata Power tanks 9% after Q4 results. What should investors do now?

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New Delhi: Shares of Tata Power Company tanked over 9 per cent during early trade on Monday following a mixed performance in the March 2022 quarter.

The stock touched a low of 223.05 on BSE in today’s session before trading at Rs 229.90 at 10.15 am. The scrip had settled at Rs 245.20 on Friday.

In the last one year, the counter has rallied nearly 110 per cent although the shares are down 25 per cent from their 52-week high of Rs 298.

Financial performance
The Tata group’s power arm said its March quarter consolidated net profit came in at Rs 632.37 crore, up 31.41 per cent from Rs 481.21 crore in the same quarter last year.

The company said its revenue from operations stood at Rs 11,959.96 crore, up 15.41 per cent from Rs 10,362.60 crore reported in the corresponding quarter year ago.

The board has also recommended a dividend of Rs 1.75 per equity share of Rs 1 each (at the rate of 175 per cent) to the shareholders for the year ended March 31, 2022.

The company stated that FY22 consolidated PAT (profit after tax) before exceptional items was up by 61 per cent year-on-year at Rs 2,298 crore compared to Rs 1,424 crore in FY21.

The consolidated revenue increased 28 per cent to Rs 42,576 crore in the financial year 2021-22 from Rs 33,239 crore in the previous financial year.

On Mundra Power Plant
The Group has initiated discussions with GUVNL to enter into a supplementary power purchase agreement (SPPA), the company said on the matter. The discussions are at a very advanced stage and agreement is reached except few items for which discussions are ongoing, and accordingly the SPPA is yet to be signed and approved.

“To ensure a continuous supply of power, GUVNL has requested the group to continue supplying power based on the SPPA which will be effective January 1, 2022. Accordingly, for the quarter ended March 31, 2022, the differential revenue of Rs 324 crore has been recognized on the basis of the current agreed draft of SPPA,” the company said.

The Centre has stepped in to tackle the power crisis by invoking Section 11 of the Electricity Act, mandating all imported coal-based projects to generate power at full capacity, sources said.

It will also help in kick-starting the non-operational units of Tata Power and Adani Power’s imported coal plants in Mundra, Gujarat. These units were not operating due to commercial issues.

Analysts’ Call
Global brokerage firm CLSA has a ‘sell’ rating on Tata Power with a target price on stock of Rs 212 as it finds the stock expensive at a valuation of 24 times at expected EPS of FY24.

The brokerage said the fourth-quarter numbers were weak, pepped up by tax break on the CGPL merger while the Indonesian coal business disappointed once again.

However, domestic brokerage firm Sharekhan has maintained a ‘Buy’ rating on Tata Power with a target price of Rs 315.

“Management’s business restructuring plans to increase share of high growth RE business would drive sustained improvement in ESG scores,” it said. “Moreover, a potential agreement with states for full pass-through of fuel cost would improve earnings growth outlook and support balance sheet deleveraging plan.”

Sharekhan sees slower-than-expected ramp-up of RE portfolio and expansion in distribution business;lower-than-expected profitability in Solar EPC business; volatility in international coal prices as key risks to the business.