Q3FY24 Review: Tata Power: Good performance; EPC ramp up ahead

12 Feb 2024 , 12:52 PM

Tata Power (TPWR) in Q3FY24 ramped up its solar EPC business, lowered AT&C losses at discoms, turned around Tata Projects, and booked Rs4.1bn dividend from Zambian IPP, which offset 64% YoY lower PAT from IPP+ coal business. Going ahead, it braces for pick up in RE installations, further ramp up solar EPC business at a time when its 4GW cell / module unit commissions. Analysts of IIFL Capital Services maintain FY24-26 PAT; retain ADD. 

Good performance:

TPWR’s Q3FY24 PAT was flat YoY; during the quarter 1) IPP + coal business earnings fell 64% YoY (weak coal even as UMPP reported strong performance); 2) flat RE PAT (ramp up in solar EPC business offset by PLFs, higher depreciation, etc); 3) 10% YoY higher T&D PAT (Odhisha, up 75% YoY, others stable); 4) turnaround at Tata Projects (loss marking projects completed); 5) Rs3bn net of tax impact of dividends received from Zambian IPP (asset held for sale); and 6) impact of lower tax rate. Notably, in Q3FY23, TPWR had booked a Rs5bn gain towards UMPP operating under S/11, and to that extent, quarterly performance seems good. 

RE scale up ahead:

During the earnings call, Dr. Praveer Sinha, MD TPWR said – 1) the landscape for RE installations in India has improved (rising module supplies, falling prices, Govt push, etc), for which its own installations should rise to 1.5-2GW p.a. from FY25 (0.6GW in FY24); 2) solar EPC business will continue to see traction as large projects are supplemented by C&I and rooftop solar (30GW opportunity); 3) its 4GW cell/module manufacturing unit is part commissioned and shall improve positioning while bidding projects, lower volatility in margins, etc; 4) feasibility studies are underway for pumped storage hydro projects; 5) UMPP under S/11 operates near rated capacity while recovering all operating costs; 6) it expects significant opportunities in interstate transmission projects as new lines are bid out. 

Maintain forecasts:

Analysts of IIFL Capital Services maintain FY24/26 forecasts and see an upside, provided module / coal prices recover at a time when TPWR’s 4GW facility kicks in and S/11 is extended. They think TPWR is well placed to benefit from a pickup in demand necessitating investments across the chain; it remains one of the preferred plays in the sector; ADD.