Q4FY23 Review Tata Power: Complex numbers

5 May 2023 , 11:22 AM

Tata Power’s (TPWR) Q4FY23 55% YoY growth in PAT was ahead of forecasts, as it booked Rs. 2.85 billion one-time gains. Utility business has done well, EPC margins have improved, while UMPP + coal profits are not separately disclosed. 

During the earnings call, TPWR MD stated: 

1) Four units of UMPP are supplying power to discoms, whereby all costs will be recovered (until Q1FY24); efforts are underway to amend PPA terms favorably. 

2) Coal prices have moderated, but favorable changes in royalty structure bode well and should cushion profitability.

3) It will commission 4GW module manufacturing unit in Q3FY24, which should improve profitability of RE business where it has massive scale up plans. 

4) FY24 capex likely to be Rs. 140 billion, including Rs. 45 billion towards RE capacity addition; net D/E is comfortable ~1x.

TPWR may have opted to shield performance of coal and UMPP, given ongoing negotiations with SEBs. In the long run, it may prove to be beneficial, however in near term, dwindling and opaque disclosures will weigh high on the stock price. 

Analysts at IIFL Capital Services have maintained their FY23-25 estimated PAT growth of 8% led by Solar EPC, RE, and Coal. These can swing by ~40% if UMPP tariff is reset favorably during the year. Meanwhile, the stock is not cheap (19x FY24) and does not offer favorable risk- reward.