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Foreign brokerage CLSA has upped its share price target on Tata Power Company Ltd to Rs 195 from Rs 189, but maintained its ‘Sell’ rating on the Tata group stock, as it believes valuations at 22 times FY25 PE are expensive.
Tata Power lacks catalysts, with war-led coal price spikes, the renewables (RE) divestment deal and the retail frenzy now past, CLSA said.
CLSA’s view came a day after Tata Power reported a 22.4 per cent year-on-year (YoY) rise in consolidated net profit at Rs 972.49 crore for the June quarter on a 5 per cent YoY rise in sales at Rs 15,213.29 crore.
The key message from Tata Power’s June quarter results, CLSA said, was that the key driver of profits for the past two years, Indonesian coal, saw a big profit decline, even as renewables (RE) businesses stabilised.
“Coal profit fell on a 68 per cent YoY decline in seaborne coal prices and a rise in costs. The RE business saw profit from IPP decline 14 per cent YoY (ex-treasury) on rising rates and weak wind utilisation rates, while the RE EPC business turned from losses on benign cell prices. The quality of its results remains challenging, in our view, with one-offs supporting PAT,” CLSA said.
The stock has underperformed market by 8 per cent in the last one-year year but the foreign brokerage still finds it expensive.
“We rate Tata Power SELL, despite its underperformance, as we believe it has run ahead of its fundamentals on a retail frenzy, a spike in coal prices and a strategic stake sale of its RE arm. Odisha discoms and expansion into pump storage remain the key bright spot, in our view. Weak coal prices are a key negative catalyst leading to risk to its EPS,” it said
