Neutral on Tata Power, target price Rs 38: Motilal Oswal

Motilal Oswal has given a neutral rating to Tata Power with a target price of Rs 38.

Tata Power’s fourth quarter (4QFY20) results reflect the benefit of better working of the Mundra-Coal JV hedge offset by lower renewable (EPC + generation). Adjusted PAT stood at Rs 2.1 billion (v/s Rs 2.3 billion in the previous year). Going forward, divestment related measures could aid cash inflow and subsequent debt repayment. However, with continued renewable capex, and given the current environment, further steps are awaited on this front. Successful renegotiation of Mundra PPA provides an upside risk.

The share price moved up by 4.16 per cent from its previous close of Rs 32.45. The last traded stock price is Rs 33.80. Incorporated in 1919, Tata Power Company Ltd., has a market cap of Rs 9101.56 crore.


Investment Rationale

Tata Power management has noted completing the sale of its Cennergi business and receiving $110 million. Sale of its defense business is expected in the second quarter of FY21 and the company is also discussing the potential sale of its Renewables and Shipping portfolio. Tata Power’s stake in Tata Projects has been put on hold due to low valuations being offered in the current environment. The company has indicated a few delays in collections from its residential customers due to extensions given by the regulator. Cash flows for these are expected to begin by end-May’20 or beginning of June’20.

Financials

For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 6620.80 crore, down -6.37 per cent from last quarter sales of Rs 7071.03 crore and down -8.43 per cent from last year's same quarter sales of Rs 7230.24 crore. The company has reported net profit after tax of Rs 160.12 crore in the latest quarter.

Promoter/FII Holdings

Promoters held 37.22 per cent stake in the company as of March 31, 2020, while FIIs held 18.62 per cent, DIIs 27.83 and public and others 16.33 per cent.