by Welcome back to Traders Ideology, In this article, we’ll do the Fundamental Analysis of Tata Power Ltd where we’ll cover its business profile leadership key strengths competitors, and future growth and then we’ll cover the financials of the company, finally we’ll conclude if Tata Power is fundamentally strong or not.
Tata Power Company Limited is primarily involved in the business of generation, transmission, and distribution of electricity.
This share touched Rs 30 in Apr 2020, but today it trades at Rs228.but what changes in business led to a rise by 6 times?
Introduction
- Incorporated in 1911, Tata Power Company Limited is an Indian electric utility company based in Mumbai (Maharashtra), and a subsidiary of the Tata Group.
- Tata Power is one of India’s largest integrated power companies present across the entire power value chain of conventional and renewable energy power services and next-generation customers solution including solid rooftop EV charging stations and home automation.
- In the future, sustainability would be the key factor and Tata power leads the industry in clean and sustainable solutions.
- Tata power established Mumbai as the first set of electric vehicle charging stations and is now present in other cities including Delhi and Hyderabad.
- Tata Power is present across the renewable value chain from solar manufacturing to customer rooftop solutions.
- Being India’s number one rooftop solar provider Tata power is continuously driving green energy for the smart consumer.
Business Model of Tata Power
- Tata Power’s business is in power generation, transmission, and distribution and a new addition is the EV infrastructure.
- Tata Power along with its subsidiaries and its joint ventures together form a value chain where they generate power conventionally and renewable and the total power generation is 12264 MW.
- If we see the breakup of the total power generated, it is as follows from this 12264 MW, 8805 MW is from thermal, 447 MW from hydro, 375 from waste heat, and 932 from solar.
- The company has recently expanded in solar power generation and increased its capacity.
- The company has more than 2600 MW in renewable power generation and we will see how it has expanded.
- If we see the data from 2008 to 2020, how their installed capacity has increased?
- The number which was 100 MW in 2008, is 2637 MW in 2020.
- The company has gradually increased its capacity. In 2012, it was only 416 MW from wind and 30 MW from solar.
- and if we talk about today, it has 1705 MW capacity in solar and 932 MW in wind.
- If you see the past 3-year trend, the wind capacity has stayed about the same but has expanded on solar.
Ev Infrastructure
- We will discuss the EV infrastructure wherein there has been significant work.
- To start with, they have installed 289 charging points and have been implemented in 20 odd cities,
- and to expand the charging infrastructure, the company has signed MOUs with companies like HPCL, IOCL, and IGL.
- Hence want to make points on the petrol pumps itself so that they can be used when it becomes a reality.
- The company has partnered with companies like Tata Motors, MG Motors, and Jaguar Range Rover for charging solutions.
- Tata Power has also taken up the initiative of establishing charging points for electric buses in Ahemdabad.
- And there was a report which stated that Tata Power is working with Tesla for opportunities and to expand their EV business.
Fundamental Analysis of Tata Power
The fundamental Analysis of Tata Power is as follows:
Competitors
- If you look at the competitors, Tata Power has stiff competition from various categories working in the power generation and EV industry.
- Its key competitors are Adani Greens, Adani Power, Adani Transmission, coal India and NTPC.
Management
- Praveer Sinha is the CEO and Managing Director, who has over 38 years of power generation and distribution sector.
- Sinha is a qualified Electrical Engineer and has done a Master’s in Business Law from National Law University, Bangalore, and has also done his Ph.D. from the Indian Institute of Technology, Delhi.
Future Growth Prospects
- Tata Power is already among the leader in the future sources of power and hence is bound to grow.
- Tata Power signed an agreement with HPLC to provide end-to-end e-charging stations at HPLC petrol pumps in multiple cities and major highways across the country.
- At present, Tata power has a network of over 5000 home chargers and nearly 700 public charges in 120 cities across India.
- The charging infrastructure itself is a mix of public charging, capital charging, home workplace charging, and ultra-rapid charges for buses.
- The company is planning to expand to 200 cities with 10,000 charging stations over the next few years. Tata Power is also one of the leading players in the clean energy business and its solar business is growing quickly.
- Tata power solar rooftop business has seen four times jump in sales in q1 of 22 against last year, and the solar pump says has jumped eight times in q1 of FY22 again same quarter last year.
- Tata Power is among the leaders in EV charging infrastructure in the country as well as working on the clean energy business. Both EV charging and the clean energy business are the future with immense growth potential.
Company Financials
Company Financials are as follows:
Revenue
- If you look at the financials, Tata Power’s revenue has grown from 33,593 crores in FY 15 to currently at 32, 648 crores by FY 21, and is currently at TTM 35,983.
- Its profits have grown from 168 crores in FY 15 to currently at 1127 crores by FY, 21 at 28% CAGR, which is excellent. Hence on the growth ratio, I would rate it 10 out of 10.
ROE and ROCE
- If you look at the profitability, its Return on Equity has been consistently about 3.41%, and its Return on Capital Employed is also constantly about 7.36%.
Debt to Equity Ratio
- Its debt to equity is 2.24, which is comparable to its peers.
Cash flow
- If you look at the cash flow from operating activity, it has consistently increased from -123 crores to 1,848 crores. Hence overall the financials are looking solid.
Shareholding
If you look at the shareholding pattern of Tata Power.
- The shareholding of the promoter is 46.86%. FIIs have 10.1% shareholding although they have slightly reduced the stakes in the last two quarters.
- DIIs hold 15.02% shareholding they have slightly reduced the stakes in the last few quarters.
- The public holds 28.01% shareholding they have increased their stakes.
Valuation
- If you look at the valuations, Tata power has given around 291% returns in the last year and is currently trading around 154 at a PE of around 35.7, which is almost reasonable compared to private-sector competitors.
- Now, considering the fact that Tata power has a high growth prospect, it is looking undervalued at current levels. I expect this stock to give a very good return in the long term. It is a good opportunity to invest in quality stock at the right valuations.
Conclusion
- In this article, we analyzed Tata Power. if I summarize Tata Power is present across the entire power value chain of conventional & renewable energy, power services, and next-generation customer solutions including solar rooftop and EV charging stations.
- Tata Power is continuously delivering green technology for the smart consumer. It has a network of over 5000 home chargers and nearly 700 public charges in 120 cities across India.
- The future of the sector is looking bright on account of the rising usage of EV charging and the clean energy business. Its financials are also looking solid.
- Tata Power Ltd is looking fundamentally strong from the valuation point of view, it is looking very attractive.
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