Street cautious on Tata Power stock after Q2 results; bearish calls persist

Tata Power reported consolidated Q2FY24 revenues, operating, and net profit of Rs 15,442 crore, up 12 per cent year-on-year (Y-o-Y), Rs 3,087 crore, up 76 per cent Y-o-Y, and Rs 1,017 crore, up 9 per cent Y-o-Y, respectively.

Results were boosted by higher plant utilisation (60 per cent) at Mundra UMPP, driven by Section 11 tariffs. 

The adjusted profit was Rs 875 crore.

Profits from associates (mainly the coal segment) were down 79 per cent Y-o-Y because imported coal prices have declined.

Lower other Income was also due to lower dividends from coal subsidiaries.

Tata Power Solar saw revenues touching Rs 1,910 crore, up 68 per cent Y-o-Y, with better margins leading to an operating profit of Rs 120 crore, up 2 per cent Y-o-Y, and net profit of Rs 74 crore.

Tata Power Solar has an engineering procurement and construction (EPC) order book for utility-scale solar projects, with orders worth Rs 15,900 crore for 3.7 gigawatt of capacity as of September 2023 (Rs 1,200 crore of orders were cancelled in Q2FY24 due to poor economics).

The positives included lower losses at Mundra.

The improved trajectory for renewable Tata Power’s earnings depends on stability in imported coal prices, faster renewable growth segment (through both asset ownership and project execution) and sustainability of Sec 11 for Mundra (currently extended to June 2024).

The balance sheet strengthened as net debt to underlying operating profit improved to 2.65 times (from 2.73 times in Q1 FY24) and the net debt to equity was at 1.02 times (from 1.09 times in Q1FY24).

Power demand saw 13 per cent Y-o-Y growth in Q2FY24.

The management believes the demand trend will last for 2-3 years. Globally, coal prices may be close to bottoming.

The Mundra operations are in the black at the PAT level (under Section 11) and generating cash profits.

The renewable portfolio of Tata Power Renewable Energy reported an operating profit of Rs 910 crore (up 33 per cent Y-o-Y) in Q2FY24.

It reported a net profit of Rs 150 crore, up 26 per cent Y-o-Y.

Units sold increased to 2,113 MUs, up 18.5 per cent Y-o-Y, on higher capacity.

The installed renewables capacity has increased to 4.2 GW with 3.7 GW more under implementation.

The Tata Power Solar Systems (TPSSL) reported revenues of Rs 1,910 crore, up 68 per cent Y-o-Y, with an operating profit margin of 6.7 per cent.

The order book, including third-party projects, is at 3.6 GW worth Rs 15,800 crore.

The revenue from its solar EPC business was Rs 760 crore. The solar rooftop business had revenues of Rs 770 crore versus Rs 550 crore in Q2FY23 and an order book of Rs 2,340 crore.

In pumped hydro storage, the company has signed a memorandum of understanding (MoU), with Maharashtra to develop 2,800 MW of pumped hydro storage projects in Pune and Raigad districts at an investment of Rs 13,000 crore.

The company expects to receive approvals by March 2024, and the projects will be operational in the second half of FY27.

The solar cell and module manufacturing facility with 4GW manufacturing capacity in Tamil Nadu under the PLI is expected to start cell production in Q4FY24 with the first modules already out in October 2023.

Around 66 per cent of modules will be utilised internally.

By 2030, Tata Power targets 70 per cent of its capacity to be green and it hopes to transit to 100 per cent by 2045.  

Analysts are not positive on the stock.

It saw some selling, with the share price dropping by 2.7 per cent after the results.