Recommendation From Power Generation & Distribution
This section gives a recommendation of a stock having stock margin padding price below Rs 100 with sound fundamentals and expected to give handsome returns over a one-year time horizon
Tata Power Company
ILLUMINATE YOUR PORTFOLIO WITH TATA POWER
HERE IS WHY
Reduction in debt
Good project pipeline
Steady growth plans
Tata Power Company Ltd. is the largest integrated power company in India with an installed generation capacity of 10757 MW. Tata Power is present in all the segments of the power sector, namely, fuel & logistics, generation (thermal, hydro, solar and wind), transmission, distribution and trading. The company also enjoys substantial international presence in Indonesia, South Africa, Singapore and Bhutan.
On the consolidated financial front, the company reported total income from operations of Rs.7,706.71 crore in Q3FY19 as against Rs.6,949.91 crore in Q3FY18, posting a growth of 10.88 per cent. Its EBITDA stood at Rs.1,601.7 crore in Q3FY19 in comparison to Rs.1,208.7 crore in Q3FY18, thereby rising 32.51 per cent. Consequently, EBITDA margin improved to 20.8 per cent in Q3FY19 from 17.4 per cent in Q3FY18. The company reported loss of Rs.111.3 crore in Q3FY19 as against profit of Rs.296.5 crore in Q2FY19. The loss is attributed to a higher-than-expected rise in costs, lower realisation at the coal JV and a rise in under-recoveries at Mundra.
The operational performance of JV companies dropped 13 per cent QoQ to Rs.17.2 billion. Nevertheless, the company’s renewable portfolio, excluding EPC, reported growth of 20 per cent in EBITDA to Rs.4.7 billion due to improvement in PLFs and capacity addition. On the distribution front, Mumbai EBITDA remained steady QoQ. Meanwhile, Delhi’s PAT reported a growth of 68 per cent QoQ on the back of rising consultancy income. Overall, for the nine months ended FY19, the company’s debt declined by Rs.16.9 billion to Rs. 483 billion. In Q3FY19, its debt was reduced by Rs.3,200 crore with net D/E ratio at 2.24x. Moving forward, the company aspires to further lower its D/E ratio to less than 2x by FY2020. It intends to do so by means of sale of stake in Tata Projects and sale of non-core assets over the next couple of years. This is estimated to fetch Rs.3,500 crore. Furthermore, it expects to receive Rs.2,200 crore through pending receipts from the sale of its defence business. It also expects Rs.1,800 crore to flow in through receipts from Arutmin mine.
In FY19, the company won 500 MW of solar projects and 100 MW worth of successful bids were placed during the previous quarter. Furthermore, the company launched rooftop solar projects in five cities. The company had set a target of expanding its presence to a total of 18 cities towards the end of FY2018- 19 and to 100 cities towards the end of December 2019.
With regards to the Mundra Ultra Mega Power Projects (UMPP), the company is undertaking measures such as blending low Gross Calorific Value (GCV) coal (32 per cent in Q3FY19 as against 10 per cent in Q3FY18) and procurement of coal at competitive prices. Moreover, it intends to lower the cost of funding by replacing ECBs with rupee loans to enhance operational efficiencies of the plant. It has approached the Central Electricity Regulation Commission (CERC) with a request to amend its Mundra PPAs. By virtue of these factors, we recommend our reader-investors to BUY this stock.
