Tata Power dips 9% on heavy volumes post March quarter results

Shares of Tata Power dipped 9 per cent to Rs 223 on the BSE in Monday’s intra-day trade on the back of heavy volumes despite the company reported strong March quarter (Q4FY22) results. The company reported 76 per cent year on year (YoY) increase in consolidated profit after tax (PAT) before exceptional items at Rs 775 crore while consolidated revenue grew 16 per cent YoY at Rs 12,085 crore.

The company received approval for merger of Coastal Gujarat Power Limited (CGPL) into Tata Power and signed binding agreement for investment in India’s most comprehensive renewable energy platform.

The strong consolidated earnings supported by higher standalone profits (rise in dividend income and tax benefit on CGPL merger) and good performance by renewable energy generation business helped offset lower coal profit and weak solar EPC margin.

However, analysts at Sharekhan believe that lower sales volume and heavy rains in March dampened the coal mining business in Q4. "Coal mining business disappointed as PAT declined by 36 per cent quarter on quarter (QoQ) to Rs 397 crore as January sales was restricted to domestic Indonesian customer (capped price of $70/tonne) and lower sales volume (down 21 per cent QoQ) due to due to heavy rains in March," the brokerage firm said.

Meanwhile, Mundra UMPP reported loss of Rs 484 crore due to lower power led factor (PLF) of 25 per cent and rise in fuel under-recoveries to Rs. 1/unit (versus only Rs. 0.16/unit in Q3FY22). "The management indicated that it is in advanced discussion with Gujarat and is in talks with other states for supplementary power purchase agreements (PPAs) for fuel coal cost pass through. This would reduce fuel under-recoveries and lower losses at Mundra," the brokerage firm added.

Additionally, analysts at Antique Stock Broking believe that the slower resolution of CGPL, slowdown in RE, and sharp decline in coal prices are key risks ahead. "The past capital allocation was driven by 39 per cent in coal/CGPL, 32 per cent in regulated businesses and 29 per cent in renewables. The path ahead will have 49 per cent of regulated businesses (with 31 per cent coming from T&D) and 32 per cent in renewables," the brokerage firm added.

On the flipside, analysts believe that Tata Power’s focus on business restructuring (CGPL merger), 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. "Additionally, management’s business restructuring plans to increase share of high growth RE business would drive sustained improvement in ESG scores. A potential agreement with states for full pass-through of fuel cost would improve earnings growth outlook and support balance sheet deleveraging plan," said analysts at Sharekhan said with a ‘buy’ rating on the stock and target price of Rs 315 per share.

At 12:33 pm; the stock traded 6 per cent lower at Rs 231.35, as compared to 0.35 per cent decline in the S&P BSE Sensex. The trading volumes on the counter nearly doubled as around 50 million equity shares changed hands on the NSE and BSE.