‘Tata Power shares may level off’, says Edelweiss; remains positive on the stock

The first round of capital infusion is expected to be completed by June 2022 and the balance funds will be infused by the end of the ongoing calendar year, Tata Power said in a statement.

“Tata Power has announced consolidation of all green businesses (RE) under TPREL, and binding agreement with a BlackRock-led consortium. The stake sale could be 9.76–11.43% contingent on FY23 results, and implies a pre-money equity value of ₹310–370 bn (mid-point INR 340 bn) for TPREL,” said brokerage Edelweiss in a note.

In the run-up to the deal, the stock rallied 20% in seven trading sessions. Hence, even though the deal is structurally positive, the brokerage expects the stock to level off in the near term as the triggers are playing out well – Mundra resolution and earnings upgrade given current coal prices are the near-term triggers.

“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,” the note stated.

In its view, the fundraising is likely to provide enough growth capital for next 4–5GW of RE capacity additions and 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 2.5–3x over the next three–four years. Besides, TPREL’s new structure would optimise cash upstreaming, and leverage management and fund-raising,” Edelweiss’ note added.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.