Underperform Tata Power, target Rs 77: CLSA

CLSA maintains an underperform rating on Tata Power with a 12-month target price of Rs 77. The Welspun deal has EV of Rs 92.5bn, with implied valuation of Rs 79m/MW.

The price is on the higher side if we consider replacement value of Rs60m/MW, said the CLSA note. The global brokerage firm is of the view that Welspun assets can generate 9-13% levered return on equity (ROE).

The transaction will increase Tata Power's leverage to 2.8x in the interim and believes that the transaction can be used to offload non-core investments in group companies. The deal would also make Tata Power as number one renewable developer.