Q2FY24 Review: Tata Power: Weak coal & S/11 – upgrade EPS

9 Nov 2023 , 10:41 AM

Analysts of IIFL Capital Services upgrade Tata Power’s (TPWR) FY24/25 consolidated PAT by 16%/10%, and see further upside if S/11 for UMPP is extended >Q1FY25 and coal revives. The Q2 performance was mixed, whereby the impact of weak coal was offset by UMPP turnaround, high treasury, and low tax. RE scale up is likely to continue (2- 3GW p.a.) with emphasis on C&I, and captive units. Near term catalysts for the stock includes completion of ~4GW cell/module mfg units + revival in coal. Analysts of IIFL Capital Services await a better entry point. 

Weak coal: 

TPWR’s Q2FY24 PAT was up 7% YoY, ahead of forecast, as it booked a Rs520m gain (unit at Trombay shut, sold equipment) + lower tax. Operationally performance was mixed: 1) UMPP operated on S/11 mode (Rs1bn PAT) but weak coal led to ~90% YoY fall in PAT; 2) Delhi and Odhisha discoms carded -5%/45% YoY PAT growth;3) solar EPC earnings were up 47% YoY (7% Ebitda margin); 4) RE IPPs on back of 9% higher capacity (4GW) reported 45% YoY PAT growth; 5) shipping companies which ferry coal for UMPP swung into profits (S/11 gains). 

Upbeat outlook: 

During the earnings call, Mr Sinha (MD TPWR) stated: 1) the power demand outlook is strong for which UMPP should continue to operate on S/11 mode and operate without any losses; 2) regional coal prices are weak, and would weigh high on segmental earnings; 3) its RE business would continue to add 2-3GW capacity p.a., where mix would be more tilted towards C&I, CPP, and storage projects; funding is in place; 4) the ~4GW cell/module capacity should be operational by H2FY24, where overall investments are ~Rs35bn; its completion should help EPC margins; plans are also to tap export markets; 5) PPAs for PSHP (~3GW) are yet not in place, but there is good visibility on demand; construction work would commence sometime in H2FY25. 

Upgrade earnings:

Analysts of IIFL Capital Services upgrade FY24/25 consolidated PAT by 16%/10% respectively, which has upside if coal revives and S/11 is extended >Q1FY25 and cell/module prices which presently are depressed show signs of revival (gains in exports). The stock would await clarity on the continuation of S/11 and revival of coal. Await a better entry point; key risk is collapse in coal prices (TPWR is net long).