Will Tata power's move from Legacy thermal business to EV segment a game changer?

    1. Company & Business Strength: 9/10

Tata Power Limited is an Indian electric utility company based in Mumbai, India, and is a part of the Tata Group. The company was founded in 1919.

The core business of the company is to generate, transmit and distribute electricity. With an installed electricity generation capacity of 10,577 MW, it is India's largest integrated power company. It also has partnerships in transmission and distribution in India such as Tata Power Delhi Distribution Ltd.

The company has a presence in all the segments of the power sector i. e Fuel & Logistics Generation (thermal hydro solar and wind) Transmission Distribution and Trading. 

In 2017, Tata Power became the first Indian company to ship over 1 GW of solar modules. 

Tata Power is one of the largest renewable energy players in India and has developed the country's first 4000 MW Ultra Mega Power Project at Gujarat's Mundra based on super-critical technology.

Tata Power also has a stake internationally such as a 30% stake in Kaltim Prima Coal company, Indonesia, In Australia- clean coal technologies. Hydro projects in Bhutan, South Africa, Namibia Projects, Singapore, etc.

The Future Vision:

Tata Power has a subsidiary Tata Power Renewable Energy Limited, to develop Solar Projects.

Tata Power and HPCL through MoU have agreed to collaborate in the planning development and operation of charging infrastructure for electric vehicles across suitable locations in India.

Business Segment:

Renewable Energy: 

Wind: Tata Power has an installed capacity of 932 MW wind power generation with plants spread across seven states of Maharashtra, Gujarat, Tamil Nadu, Karnataka Rajasthan, Andhra Pradesh, and Madhya Pradesh leading in promoting wind power generation in India.

Solar: Tata Power Solar has a portfolio of more than 7GW of ground-mount utility-scale, over 750MW of rooftop and distributed generation projects across the country & installed over 55000 Solar Water Pumps in India to date. It also offers a diverse line of solar solutions for both urban and rural markets – these include rooftop solutions, solar pumps, and power packs among others.

Conventional Energy:

Hydro Power: Hydropower generation projects used for Industrial use are spread across Bhira, Bhivpuri, and Khopoli in Maharashtra. 

Thermal Power: Thermal power plants use supercritical technology, supplying cost-competitive power to various industries and agricultural processes. Presently our Thermal Power Plants are located across Trombay in Mumbai, Jamshedpur, Maithon, and Jojoba in Jharkhand, Haldia in West Bengal, Kalinganagar in Odisha, Mundra in Gujarat, and Prayagraj in Allahabad. 

Waste Heat Recovery: Tata Power has set up various plants at Haldia and in Jamshedpur for Waste Heat Recovery, based on the blast furnaces and coke oven gases, which are waste gases from steel-making processes that help in reducing greenhouse gas emissions significantly.

Transmission & Distribution: 

TATA Power's Transmission and Distribution use advanced power system designs, new-age technologies, and customized solutions ensuring greater performance and efficiency of utility and stakeholders as well as smart utility operations to understand first-hand the challenges of the customers.

Trading:

The Company has emerged as a pioneer in shaping India's vibrant power trading market, with a track record of performance, customer care, and sustained growth with access to Technical, Managerial, and Financial resources of its parent company.

Energy Solutions: 

Tata Power, along with our partners, works on delivering uninterrupted power supply and beyond-the-meter services to ensure customer convenience and satisfaction.

Next-Gen Solution/ EV Infrastructure:

Tata Power Solaroof: India's No 1 Solar rooftop EPC company for 7 years in a row.

Tata Power EZ Charge: EV Charging experience with Tata Power EV charging solutions across homes, offices, malls, hotels, retail outlets, and places of public access with a vast network of 1000+ chargers spanning various locations across India caters to our ever-growing consumer base.

Tata Power EZ Home: TATA Power introduces Home Automation Solutions. Operate, schedule, and monitor your lights and electrical appliances from anywhere with your phone and with voice control via Google Assistant or Alexa.

Tata Power Smart Energy Management: TATA Power provides integrated energy solutions to meet the affordable and sustainable requirements of our customers, addressing both the demand & supply side.

2. Competitive Strength: 9/10

Tata Power Ltd is an Indian company in power Generation & Distribution, it has competitors like Power Grid, NTPC, Adani Power, JSW energy, IEX, NHPC, Torrent power, and others.

Since it is moving to Renewable and EV charging sectors it has competitors like Adani Green Energy, Reliance, and others although one of the leading in this space currently.

3. Stock Analysis Return & PE Ratio: 8/10

Tata Power Ltd Stock is listed both in NSE, and BSE and currently trading around 240 (Jan 2022), with 52 highs of 270s and a low of 74s.

It has a market cap of 77000+ which is a Large cap, Stock was not been good for long-term investment due to the Power sector's profit margin and volatility. But since it diversified into renewable and EV charging and distribution it has come to the light of many. The stock has recently given a very good return in the last few years after this change with future bets.

The stock has given a 3-year CAGR of 69.5% which is exceptional. 

The face value is 1, so expect bonuses and buybacks.

PE Ratio: Tata Power has a PE of 50 currently which is expensive compared to the sector.

4. Dividend: 6/10

The stock has been giving a fair dividend of 0.64%. Generally, we expect a growing company to give atleast 1% dividend which is a good gesture and sign unless high Capex is planned.

Financial Ratios:

5. Sales Growth/Revenue: 3/10

The Sales growth indicates that the company can capture the market, and which may increase profitability. 

Tata Power has a 3-year median Sales growth of -6.6%  which is poor. Current year (2021) growth stands at -21.01%. For Large caps, we consider the growth of atleast 10-15%+ as healthy sales. 

6. Profit Growth: 9/10

Sales growth indicates a good income, but unless profit is not made it's terrible. Profit growth indicates how expenses are managed or also how the company has pushed the raw material prices to end customers.

Tata Power Profit growth stands at a 3-year median of 31.86% which is exceptional, Current year stands at 522.1%. For Mid cap atleast 20% is considered healthy growth in Profitability.

7. [ROE] & [ROCE] %: 4/10

Return on Equity:

ROE indicates the ability to generate profits from shareholders/Equity Investments. Tata Power ROE has a 3-year median of 6.77%.  The current year stands at 6.01%. 

We consider a healthy ROE to be atleast 20% for growth companies.

Return on Capital Employed:

ROCE indicates the ability to use its capital employed for business. Tata Power ROCE has a 3-year median of 7.54%.  The current year stands at 6.65%. 

We consider a healthy ROCE to be atleast 20% for growth companies.

8. Debt/Equity: 3/10

D/E is a measure of which a company is running through debts vs owned funds. Ideally, D/E should be less than 1, which indicates stability. 

Tata Power has a D/E of 1.22 which is excellent. Unless capital expansion or any other is required, a low debt is always good to maintain profitability.

We consider debt-free or D/E<0.1 to be healthy. 

9. Shareholding %: 10/10

The company has a high Promotor holding of 46.86%. The FII and DII of  15.9% and 10.84% indicate Institutions have very high holding, the Remaining area Public.

Note: The Promoter Pledging % is 0% which is good, generally no pledging indicates a good sign.

Another indicator like interest coverage ratio, Return on Assets[ROA], and others also seems good.

10. Future Prospects: 9/10

Pros:

Although with Poor Revenue growth, the company managed to have good profit growth.

Leading Player in EV charging space, with new technologies and advancement to Future clean energy vision.

Future Bet on EV Infrastructure and Next gen Services like Solar rooftops can boost Sales and financials.

Cons:

High Debt with D/E greater than 1.

Power Sector Regulation and volatile business.

Poor Revenue Growth over the last 3 years, with fair other financials like ROE, and ROCE.

Investment Hacks Score Card: 

The average score of Tata Power Company Ltd based on all factors comes to be 7.4/10.

Conclusion:

Overall Tata Power Company Ltd had a normal Power Generation business, but the moving towards EV and Renewable might be a game changer for this company and stock has been on the radar of many investors. The stock has only given good returns to shareholders recently with improvement in profit and hype towards the Future but has been poor before 2020. 

The Future may be really good with integration with Tata motors and other Auto companies and it can completely change the financials that the company is facing now. Although a large-cap stock, investors can see high volatility due to future hype or uncertainty. 

Disclaimer:

Since this is an educational opinion, Please research thoroughly or consult your financial advisor before Investment.

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Team Investment Hacks