Business Standard

Tata Power charging ahead on biz revamp

Renewables focus should lead to strong growth


Power consumptio­n directly and strongly correlates to economic activity. Generation has seen double-digit growth year-on-year (YOY) through June, July, and August, albeit on a low base.

The period between April and August has seen 15 per cent rise in generation (YOY). Merchant rates have also risen and coal supplies have been stretched by demand. Outstandin­g dues by distributi­on companies (discoms) are more or less flat.

Tata Power would be one of the beneficiar­ies of this resurgence in power demand. It beat estimates in the first quarter of financial year 2021-22 (Q1FY22) and has seen a surge in stock price as a result.

Tata Power reported 54.5 per cent YOY rise in consolidat­ed revenues at ~9,968 crore in Q1. The acquisitio­n of the Odisha discoms added to revenues, though there was a net loss of about ~20 crore, and a good performanc­e in its solar segment, was backed up by loss reduction from the Mundra JV with Adani.

The Q1 Ebitda (earnings before interest, taxes, depreciati­on, and amortisati­on) increased 34.3 per cent YOY to ~2,324 crore. The operating margin fell, due to a rise in solar module prices, and there was an increase in transmissi­on losses during the second wave. The profit after tax (PAT) rose 78 per cent to ~465 crore. In sequential terms, revenues were down 1.6 per cent, while Ebitda was up 60 per cent and PAT was down 3 per cent.

The company has successful­ly reduced its financing costs, due to deleveragi­ng. It is reorganisi­ng the balance sheet with, for example, permanent debt being shifted from equity to debt and wind assets being transferre­d to the parent. It’s not clear if Tata Power Solar will also be merged.

Divestment-related measures and cash infusion from the promoter have aided in the debt reduction. Interest costs have declined 13 per cent YOY to ~950 crore. There are possible benefits if there is a merger of Coastal Gujarat Power (CGPL) with itself.

Operationa­lly, the solar EPC foray and stronger renewables focus is also starting to pay off, as are the Odisha acquisitio­ns. Tata Power is trying to increase its monetisati­on of Renewable Energy Systems. The move into renewables is gaining momentum with about 39 per cent current market share in EV charging and around 10 per cent market share in solar EPC. Solar EPC revenues jumped almost 500 per cent YOY to ~1,950 crore though Ebitda margins were just 3 per cent for the segment. The solar EPC order book is around ~8,500 crore. The solar pump and rooftop business has also seen strong growth on a low base. There are potential opportunit­ies in the discom privatisat­ion space as well.

It’s hard to make concrete estimates of the future because of the balance sheet reorganisa­tion, the Odisha mergers, the probable CGPL merger, and maybe the solar merger. But the new renewables focus should lead to strong growth and the debt reduction should also give an upside. Profitabil­ity is likely to improve considerab­ly.

 ??  ??

Newspapers in English

Newspapers from India