Tata Power shares fell on Thursday after the company reported a 9 percent year-on-year (YoY) rise in net profit on a similar growth in sales for the September quarter. Analysts were expecting a 13-40 percent rise in profit for the utility company on a 6-17 percent jump in sales.
Despite the disappointing results, some analysts remain cautiously optimistic about Tata Power’s prospects. Kotak Institutional Equities revised its earnings estimates for the company but maintained its SELL rating with a revised fair value of Rs 220 per share. The brokerage noted that Tata Power’s focus on business restructuring and its high-growth renewable energy (RE) business could lead to sustained earnings growth in the long term.
Sharekhan also maintained its Buy rating on Tata Power with a revised price target of Rs 285. The brokerage cited the company’s improving power demand, stable coal prices, and focus on increasing its RE portfolio as reasons for its optimism.
Overall, analysts are mixed on Tata Power’s outlook. The company’s near-term earnings are likely to be volatile due to the ongoing volatility in coal prices. However, the company’s long-term prospects are more positive, thanks to its focus on business restructuring and its growing RE business.
Tata Power’s earnings going forward depend on three factors: stability in the prices of imported coal and their contribution to earnings, growth from the renewable energy segment, and the sustainability of Section 11 orders for the Mundra plant, which have been extended until June 2024. The company’s focus on business restructuring, high-growth renewable energy business, and entry into power transmission will be crucial for sustained earnings growth. The management aims for a fourfold increase in Profit after Tax (PAT) by FY2027 compared to FY2022, which will lead to improved earnings quality. Additionally, Tata Power aims to increase its renewable energy portfolio and secure cost-reflective long-term Power Purchase Agreements (PPAs) for the Mundra plant, utilizing stable cash flows from its regulated generation and distribution businesses.
Investors should carefully consider these factors before making an investment decision in Tata Power.