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Strong order book and quarterly results: Are these signs enough for this power stock to rally?

Tata Power renewable energy

Tata Power has been considered as the pioneer in technology adoption because it has many firsts to its credit, supporting India’s energy independence. The company, and its subsidiaries & joint entities, has generation capacity of 14, 294 MW. Out of this, ~38% comes from the clean energy sources. It has the distinction of being among the renowned private players in each and every sector of the value chain which includes solar rooftop and value-added services.

In 1Q24, the company saw growth of 29% in 1Q24 with net profit at INR1,141 crore. With this, it saw net profit growth for the 15th consecutive quarter (year-over-year), with healthy growth in consolidated revenue and EBITDA. Consolidated revenue for the reporting quarter came in at INR15,003 crore, and EBITDA went up by 43% to INR3,005 crore. Strong financial performance of the company stemmed from sustained business growth throughout all the clusters. Higher sales throughout Distribution Companies and capacity addition in renewables supported the company’s revenue growth in 1Q24. 

Consolidated PAT before exceptional items of Tata Power grew 3% at INR906 crore in comparison to INR884 crore in 1Q23 as a result of strong performance throughout all the businesses. 

The company has planned ~INR12,000 crore of capex for present financial year which should help it in green energy transition and in growth opportunities in transmission and distribution business. 

Tata Power is all set to develop round the clock renewable power solutions. It continues to make significant progress in building solutions about battery storage, pumped hydro projects, and other hybrid solutions. 

Growth developments

Tata Power signed MoU with the Government of Maharashtra. This MoU relates to the development 2,800 MW of Pumped Hydro Storage Projects in Pune and Raigad Districts. Collaboration appears to be the major step in the company’s journey to clean and green energy future. This should support renewable solar and wind projects. 

In 1Q24, the company won 1,214 MW of projects. The company has commissioned total 184 MW of renewable energy projects, which includes 110 MW for supply to Kerala State Electricity Board. 

During 1Q24, total business in rooftop solar came in at ₹390 crore and its well-diversified utility scale order book was 4.2 GW worth INR17,643 crore. 

Tata Power Solar Systems Ltd. joined hands with Ecofy, which is India’s first exclusive green only NBFC, to offer lending to individuals and small businesses for acceleration of affordable rooftop solar financing. 

The company received a Letter of Award for the implementation of ~INR1,744 crore smart metering project for Chhattisgarh State Power Distribution Company Limited (CSPDCL).

Tata Power plans to employ 1,018 e-bus charging points for Tata Motors CESL project in Delhi, Jammu, Srinagar, and Bengaluru. 

Favourable industry dynamics make up the case for Tata Power

The company believes that there is a strong correlation between GDP and power generation growth and India has one of the lowest power consumption per capita, hinting that there is significant growth potential. Ratio of power generation growth to GDP growth has only increased over the previous 5 years.

With focus on providing sustainable and energy-efficient transportation, governments throughout the world introduced numerous schemes so that EV purchase can be incentivised in comparison to conventional vehicles. Just as in 2021, EV sales saw a significant growth in 2022 as the year saw sales of over 10 million EVs globally. This exhibits a rise of more than 50% against 2021. Apart from this, EV charging installations went up by 55% to 2.7 million charging points till 2022. Tailwinds consist of increased government support as they continue to launch incentives and subsidies including tax credits, buying incentives, and infrastructure investments. 

Investment rationale

More than 1/3rd of the company’s generating capacity is sourced from clean and green energy sources such as solar, wind and hydro. It continues to facilitate this clean energy transition with the help of new technology adoption in collaboration with its customers and partner. Aim of the company is to phase-out of all coal-based generation and it targets to be a carbon net-zero before 2045. 

Indian market remains the principal focus of the company and domestic market makes up for over ~96% of its generation capacity. Tata Power appears to be in a place to grow in the fields of renewable generation, transmission, distribution and new and service-led businesses. 

Regarding Thermal and Hydro Generation, the company continues to evaluate growth opportunities in services for thermal and hydro plants. This is being done by leveraging the technical and operation expertise. In the consumer businesses, it has significant plans to scale up such businesses like rooftop solar, EV charging, solar pumps, microgrids, energy efficiency solutions and home automation. 

Tata Power has been able to recognise opportunities which continue to arise in rooftop solar. The company continues to develop new offerings and models to improve adoption in consumers, including financing solutions, extending EPC model, recurring revenue model and several other value-added offerings. 

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