NEW DELHI: The Black Rock Real Assets-led consortium’s Rs 4,000-crore investment in Tata Power Renewables is being seen as a strategy positive. Domestic brokerage Edelweiss, however, believes the deal value was below expectations and that following a sharp 20 per cent in one month and 190 per cent in a year, Tata Power shares are unlikely to see any upside.
According to the binding agreement, Black Rock Real Assets will invest the funds by equity and compulsorily convertible instruments for a 10.53 per cent stake in Tata Power Renewables, translating to a base equity valuation of Rs 34,000 crore. The final shareholding will range from 9.8 per cent to 11.4 per cent on final conversion.
This newly created platform will consist of five distinct businesses. It will house all renewable energy businesses of Tata Power including those in utility scale solar, wind & hybrid generation assets; solar cell & module manufacturing; engineering, procurement and construction (EPC) contracting; rooftop solar infrastructure; solar pumps and electric vehicle charging infrastructure.
“The deal value is slightly below our expectations. Even so, it is a very positive development for Tata Power as it funds RE capex for the next three years; and the new structure optimises capital deployment and future fund-raising. Overall, the deal would fast-track RE growth,” it said.
In the run-up to the deal, the stock rallied 20 per cent in the last one month sessions and is up 190 per cent in the last one year. “Even though the deal is structurally positive, we expect the stock to level off in the near term. Overall, it feels the triggers for stock are playing out well, with Mundra resolution and earnings upgrades,” Edelweiss said while suggesting a target of Rs 250 on the stock. The scrip closed at Rs 273 a piece on Wednesday, suggesting a potential downside on the counter.
As of today, a total of 14 brokerages have an average price target of 228 on the stock, which suggests a potential 16.5 per cent downside. More brokerage views on the news development may pour in as the ongoing long weekend ends.
Edelweiss said the Rs 4,000 crore fund-raising is likely to provide enough growth capital for the next 4–5GW of renewable energy capacity additions. At present, the capacity stands at 4.9GW. It would also be enough for 4GW of new manufacturing facilities.
“This will have a multiplier effect on earnings growth due to the integrated business model and possibly fuel TPREL’s operating profit 2.5–3 times over the next three–four years. Besides, TPREL’s new structure would optimise cash upstreaming, and leverage management and fund-raising,” it said.
Meanwhile, Tata Power is likely to report a decent set of June quarter numbers, which would be aided by higher profits from coal JV’s, analysts said. B&K Securities noted that international coal prices surged to above $400 per tonne level in March. Mundra unit, it said, is better off at a plant load factor (PLF) of 23-26 per cent even with the DMO penalty.
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