KEY DATA From a utility to growth play - Business Standard

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KEY DATA

Rating BUY Sector relative Outperformer Price (INR) 69 12 month price target (INR) 95 Market cap (INR bn/USD bn) 221/3.0 Free float/Foreign ownership (%) 53.1/10.8

What’s Changed Target Price

Rating/Risk Rating ⚊

INVESTMENT METRICS

From a utility to growth play

Tata Power (TPCL) is on the cusp of a mega transformation. It is: i) shedding the burden of legacy via deleveraging and restructuring; and ii) realigning the business model to new ESG trends, which are both niche and scalable, to harness growth. While Street’s fixated on legacy troubles and valuing TPCL accordingly, we argue the company has outlived its past and is primed for sustainable and clean growth.

We plumb TPCL’s new opportunities (USD87bn)—renewable energy (RE), Distribution and EV—and its positioning thereof. And make a case that TPCL is powering ahead on a sustainable growth path (25% CAGR), which would drive a shift in how it is perceived and eventually spur its re-rating. Retain ‘BUY’ with a TP of INR95 (up from INR75).

FINANCIALS (INR mn)

Year to March FY20A FY21E FY22E FY23E

Revenue 291,364 337,570 419,472 465,684

EBITDA 79,428 76,237 83,936 93,954

Adjusted profit 12,014 13,701 19,535 23,540

Diluted EPS (INR) 4.4 4.3 6.1 7.4

EPS growth (%) 63.2 (3.5) 42.6 20.5

RoAE (%) 7.5 6.4 8.1 9.1

P/E (x) 15.5 16.0 11.2 9.3

EV/EBITDA (x) 7.5 7.1 6.5 5.8

Dividend yield (%) 2.2 2.2 2.5 2.8

PRICE PERFORMANCE

Cranking up growth engine…with goodness

We classify TPCL’s growth into: i) conventional/old-line and ii) sunrise. The former

includes GTD (ex-RE and Microgrids) and the latter comprises EV, RE (all businesses),

and home automation. Our proprietary work pegs the sunrise market potential at

USD59bn (2x conventional) over the next three–four years, but TPCL’s market share

thereof would probably lag its share in the conventional market. Overall, more than

70% of the incremental PAT (excluding interest cost reduction) would be sunrise-

driven. Importantly, regardless of the lever, growth would be ESG-accretive, contrary

to Street’s perception. We expect CESU/EPC to make good the likely loss of INR25bn

in renewable InvIT revenue, and thermal revenue mix to reduce by 10% to 38% in FY23.

Deleveraging and restructuring: More than an undercurrent

The last decade for TPCL was marred by debt/valuation trap owing to various factors.

The company is now on track to shed its dubious tag of a ‘high leverage and complex

company’. Its corporate DNA has mutated with disentangling of operations and

deleveraging (to be slashed by 50% by Mar-21). The company is ready to harness

growth opportunities on the back of its leaner and tightly controlled balance sheet.

After paying down INR40bn in external debt, Mundra is broadly self-sustainable, and,

should coal prices not spiral (low odds in our view), the CT issue stands relegated.

Explore:

Outlook and valuation: Sunrise powering growth; retain ‘BUY’

In this note, we attempt to debunk the growth challenges surrounding TPCL and

counter argue that it is in fact the most comprehensive player in the entire

renewable/EV chain. We forecast the sunrise business PAT mix at 40–45% by FY23.

Renewable InvIT delay, coal price surge and higher AT&C losses are a few key risks.

We are raising the TP to INR95 assigning a higher valuation to renewable EPC

(INR12/share) and developer renewable (INR18/share), and incorporating the

Odisha distribution business (INR6/share) owing to stronger execution and peers’

valuations (refer to exhibit 49). Accordingly, we are raising EPS by 20–30% for FY21–

23E. Our earnings forecast/target price is 15/30% higher than consensus, and we

expect consensus to follow suit, similar to the past. We maintain ‘BUY/SO’.

-5

0

5

10

15

20

Sales Growth(%)

EPS Growth(%)

RoE(%)

PE(x)

Power TPWR IN Equity

25,000

29,400

33,800

38,200

42,600

47,000

20

32

44

56

68

80

Dec-19 Mar-20 Jun-20 Sep-20

TPWR IN Equity Sensex

India Equity Research Power December 21, 2020

TATA POWER COMPANY UPDATE

Swarnim Maheshwari Ashutosh Virendra Mehta +91 (22) 4040 7418 +91 (22) 6141 2748 [email protected] [email protected]

Corporate access

Financial model Podcast

Video

https://www.edelweissresearch.com/Research/Company?Id=3449

https://www.edelweissresearch.com/Podcasts?Search=tata+power&FromDate=&ToDate=

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TATA POWER

Edelweiss Securities Limited

2 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL <GO>, Thomson FirstCall, Reuters and Factset

Financial Statement (Consolidated)

Income Statement (INR mn) Year to March FY20A FY21E FY22E FY23E

Total operating income 291,364 337,570 419,472 465,684

Energy Cost 161,429 183,254 222,164 231,341

Employee costs 14,406 16,878 23,071 25,613

Other expenses 36,101 61,200 90,301 114,777

EBITDA 79,428 76,237 83,936 93,954

Depreciation 26,336 29,599 31,462 34,725

Less: Interest expense 44,937 39,917 38,992 40,749

Add: Other income 5,626 5,719 5,819 5,929

Profit before tax 23,307 19,756 27,299 32,502

Prov for tax 6,415 3,352 4,326 5,090

Less: Other adj 375 0 0 0

Reported profit 14,276 13,701 19,535 23,540

Less: Excp.item (net) (2,262) 0 0 0

Adjusted profit 12,014 13,701 19,535 23,540

Diluted shares o/s 2,705 3,195 3,195 3,195

Adjusted diluted EPS 4.4 4.3 6.1 7.4

DPS (INR) 1.5 1.5 1.7 1.9

Tax rate (%) 27.5 17.0 15.8 15.7

Important Ratios (%) Year to March FY20A FY21E FY22E FY23E

Energy cost (% rev) 55.4 54.3 53.0 49.7

Employee cost (% rev) 4.9 5.0 5.5 5.5

Other exp (% rev) 12.4 18.1 21.5 24.6

EBITDA margin (%) 27.3 22.6 20.0 20.2

Net profit margin (%) 4.1 4.1 4.7 5.1

Revenue growth (% YoY) (2.5) 15.9 24.3 11.0

EBITDA growth (% YoY) 17.8 (4.0) 10.1 11.9

Adj. profit growth (%) 63.2 14.0 42.6 20.5

Assumptions (%) Year to March FY20A FY21E FY22E FY23E

GDP (YoY %) 4.8 (6.0) 7.0 6.0

Repo rate (%) 4.4 3.5 3.5 4.0

USD/INR (average) 70.7 75.0 73.0 72.0

Mundra unit sale (MUs) 29,328.5 29,328.5 29,328.5 29,328.5

Mundra tariff (INR/kwh) 2.9 2.5 2.5 2.6

BUMI coal sales (MT) 59.0 58.0 59.0 60.0

BUMI avg realn. (USD/t) 51.9 48.8 51.8 56.3

Reg Equity Cl (INR mn) 80,670.4 82,515.5 84,360.6 86,190.7

Reg RoE Co (%) 19.3 19.8 20.3 20.9

Valuation Metrics Year to March FY20A FY21E FY22E FY23E

Diluted P/E (x) 15.5 16.0 11.2 9.3

Price/BV (x) 0.9 0.9 0.9 0.8

EV/EBITDA (x) 7.5 7.1 6.5 5.8

Dividend yield (%) 2.2 2.2 2.5 2.8

Source: Company and Edelweiss estimates

Balance Sheet (INR mn) Year to March FY20A FY21E FY22E FY23E

Share capital 2,705 3,195 3,195 3,195

Reserves 177,955 217,373 231,476 248,944

Shareholders funds 195,660 235,568 249,671 267,140

Minority interest 23,320 26,023 29,461 33,334

Borrowings 445,395 404,298 410,448 422,258

Trade payables 50,954 55,227 66,953 69,719

Other liabs & prov 107,557 107,557 112,289 114,277

Total liabilities 886,856 892,643 932,793 970,697

Net block 446,626 452,027 458,065 458,340

Intangible assets 30,038 30,038 30,038 30,038

Capital WIP 16,115 20,000 20,000 20,000

Total fixed assets 492,779 502,065 508,103 508,378

Non current inv 138,353 118,353 118,353 118,353

Cash/cash equivalent 27,937 40,468 46,403 63,062

Sundry debtors 44,259 46,242 57,462 63,792

Loans & advances 27,575 29,693 30,690 31,727

Other assets 140,682 139,328 154,795 167,888

Total assets 886,856 892,643 932,793 970,697

Free Cash Flow (INR mn) Year to March FY20A FY21E FY22E FY23E

Reported profit 14,276 13,701 19,535 23,540

Add: Depreciation 26,336 29,599 31,462 34,725

Interest (net of tax) 32,569 33,145 32,813 34,368

Others (6,170) 3,756 3,798 4,325

Less: Changes in WC 6,743 304 (11,719) (16,216)

Operating cash flow 73,753 80,505 75,888 80,741

Less: Capex 52,305 38,885 37,500 35,000

Free cash flow 21,448 41,620 38,388 45,741

Key Ratios Year to March FY20A FY21E FY22E FY23E

RoE (%) 7.5 6.4 8.1 9.1

RoCE (%) 8.9 7.9 8.6 9.2

Inventory days 39 39 40 46

Receivable days 56 49 45 48

Payable days 120 106 100 108

Working cap (% sales) 22.3 18.8 17.8 19.4

Gross debt/equity (x) 2.0 1.5 1.5 1.4

Net debt/equity (x) 1.9 1.4 1.3 1.2

Interest coverage (x) 1.2 1.2 1.3 1.5

Valuation Drivers Year to March FY20A FY21E FY22E FY23E

EPS growth (%) 63.2 (3.5) 42.6 20.5

RoE (%) 7.5 6.4 8.1 9.1

EBITDA growth (%) 17.8 (4.0) 10.1 11.9

Payout ratio (%) 28.4 35.0 27.8 25.8


TATA POWER

Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL <GO>, Thomson FirstCall, Reuters and Factset 3

The story in charts

USD87bn market opportunity in the offing – A lowdown

Solidly positioned to tap into sunrise business…

…which would lead the show hereon

…and EPC warrants a major re-rating

Source: Companies, Industry, Mercom, IEEFA, Edelweiss Research

…substantiated by 40% incremental PAT contribution

*Revenue and EBITDA divided by 10 and 5, respectively, for representation

18%

9%

25%

3% 11%

18%

34%

0.0

11.0

22.0

33.0

44.0

55.0

FY20 FY23E FY20 FY23E FY20 FY23E

(IN

R b

n)

Conventional Interest cost savings Sunrise

REVENUE* EBITDA* PAT

0.0

2.0

4.0

6.0

8.0

10.0

0

20

40

60

80

100

FY17 FY18 FY19 FY20 H1FY21

(%)

(IN

R b

n)

SWS overall EPCOB Tata Power Solar EPC OB

12.0

4.7

4.4

2.5

23.5

2.5 -1.5

24.6

0.0

6.0

12.0

18.0

24.0

30.0

FY2

0 P

AT

Int.

sav

ing

Incr

. PA

T (S

R)

Oth

er b

usi

nes

s

FY2

3 P

AT

Int.

sav

ings

(In

vIT)

51

% L

oss

(In

vIT)

FY2

3 p

ote

nti

al P

AT

(IN

R b

n)

TATA POWER



Deciphering business growth and drivers

TPCL is undergoing a transformation: it is getting rid of legacy issues, namely debt

pile-up and the Mundra issue; most importantly, the company is rejigging the

business model with an eye on sustainable and profitable growth.

With thermal decidedly out of favour, one of the key strategies is to train focus on

new avenues of growth that are less capital-intensive, and are also gaining traction,

e.g. solar EPC & pumps, T&D (especially D segment) and renewable businesses.

Besides, the company is gradually moving into the B2C value chain via EV and home

automation, among others.

Sunrise a big focus, but don’t write off Conventional yet

Source: Company, Edelweiss Research

* Revenue and EBITDA divided by 10 and 5, respectively, for representation

In order to better understand TPCL’s growth landscape, we are classifying its

business growth in two:

i) Conventional/old-line - GTD (ex-RE and Microgrids) business; and

ii) Sunrise: RE (utility developer & EPC, rooftop developer & EPC, pumps), EV, home

automation, etc.

We peg the market potential for the sunrise business at USD59bn against USD28bn

for the conventional market over the next three–four years. However, the hit

ratio/market share in the sunrise market is likely to be half of that in the

conventional market at 9–10% given the established conventional business. Overall,

we expect INR300–350bn of revenue accretion over the next three–four years.

Clearly, EPS growth (25% CAGR) is tilted towards the sunrise business with a CAGR

of 36% as against 18% for conventional (including deleveraging impact of ~10%)

over FY20–23E.

In the sections below, we dive into all aspects of the conventional and sunrise

business. Clearly, solar EPC is one of the key facets of the sunrise business, which

could infuse significant delta into the bottom line.

18%

9%

25%

3% 11%

18%

34%

0.0

11.0

22.0

33.0

44.0

55.0

FY20 FY23E FY20 FY23E FY20 FY23E

(IN

R b

n)

Conventional Interest cost savings Sunrise

REVENUE* EBITDA* PAT

More than 70% of incremental PAT (ex-

interest cost savings) to come from the

Sunrise business


TATA POWER


Power Distribution: TPCL in pole position

to ride privatisation drive

The weakest link—power distribution sector—continues to be at a trough; in fact, it

is worsening due to the covid-19 pain. Discoms’ ballooning overdues to generating

companies (gencos) are at an all-time high of INR1.3tn. This is affecting the entire

power value chain, particularly stretching gencos’ working capital to unmanageable

levels.

Discoms’ ballooning overdues

State (INR bn) Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20

Rajasthan 233 248 262 319 319 331 344 350 356 372 374 383

Tamil Nadu 87 121 148 136 146 159 170 181 191 197 218 205

Uttar Pradesh 48 62 81 105 97 104 131 137 133 118 122 137

Karnataka 24 33 39 38 38 47 57 64 88 93 89 85

Maharashtra 16 49 48 86 78 84 110 114 76 73 75 75

Telangana 37 52 59 58 59 63 69 72 52 52 51 57

J&K 13 23 29 38 45 46 56 59 63 66 77 55

Andhra Pradesh 26 37 44 34 33 40 47 45 41 46 33 41

Madhya Pradesh 10 11 12 12 12 12 13 17 20 22 30 36

Delhi 9 10 10 9 12 15 13 13 10 11 11 13

Gujarat 2 3 3 3 3 3 3 3 3 5 5 5

Punjab 1 2 4 2 3 3 6 5 3 3 4 3

Total dues from all discoms 577 729 825 938 946 1,019 1,138 1,193 1,175 1,196 1,247 1,262

Source: Praapti, Edelweiss Research

Various government reforms are yet to make a meaningful impact. The key reasons

for mounting discom debt are structural: i) Absence of competition; ii) higher AT&C

losses; iii) an economically inefficient tariff-setting processes; and iv) lack of sunrise

technology and infrastructure development.

However, some major reforms are on the anvil—and not a quick fix this time

around. The National Tariff Policy and the Electricity Amendment Act, 2020 are the

two major upcoming reforms that would clear the hurdles and set the stage for a

gradual improvement of discoms’ finances.

Major reforms on the anvil

Source: Company

NATIONAL TARIFF POLICY ELECTRICITY AMENDMENT BILL

• Reduction of capped crossed subsidy gradually

• Cap on AT&C losses recoverable in tariff• Simplification of tariff categories• Penalties for deviation in defined

Discom service standards

• Opening power distribution to franchisee and sub licensee business

• Power tariff to be determined with no subsidy component

• Cost-reflective, time bound tariff• Direct benefit transfer to beneficiaries

Bring down subsidies - DBT

Private participation

through PPP & DF in states and Union Territories

Bring down subsidies - DBT

FY25 TARGETSAT&C Losses <10%ACC-ARR GAP - NIL

We believe that political will and extremely

poor health of discoms will lead to big

reforms in the distribution sector

TATA POWER



In this regard, we are of the opinion that the past privatisation of circles is a good

template for a national rollout. That said, the standard bidding document for

privatisation could run into resistance by states and discoms, but it is likely to find

its way through gradually.

Privatisation has led to massive reduction in AT&C losses

Source: Companies, Edelweiss Research

TPCL well positioned to ride the opportunity

Tata Power is India’s largest private distribution company with an existing customer

base of ~5mn (9mn considering the recent win of Wesco and Southco in Odisha). So

far, the company has majorly won licensed circles and is positioned for opportunities

in the franchisee model. With an existing market share of ~45% in the private

distribution space by number of customers, TPCL is clearly one of the front-runners

in the booming distribution opportunities in India.

TPCL has the highest market share on basis of number of customers

Source: Companies, Industry, Edelweiss Research

0.0

15.0

30.0

45.0

60.0

75.0

Delhi Agra Ajmer Bhiwandi

(AT&

C lo

ss %

)

Discom circle

AT&C loss at the time of privatisation Current AT&C loss

Torrent Power 17.9%

Adani Transmission

14.5%

CESC 20.3%

Tata Power43.5%

Others 3.9%

TPCL has a market share of about 45% by

number of customers; incrementally, we

expect it to maintain a 30% market share


TATA POWER


Recent win of Odisha’s circle supports argument

Having won Odisha’s CESU in Dec-19, TPCL recently won two more distribution

companies (11 circles) – Wesco and Southco, thereby cumulatively adding 4mn

customers. The bid is for distribution and retail supply of electricity on a licensed

basis for 25 years.

We forecast INR28bn in capex planned for the next three–four years would more

than double the regulated equity (RE) base to INR6bn. Moreover, TPCL could

significantly improve the existing 16% return by reducing AT&C losses (40%

currently). However, in early stages, CESU’s higher-than-expected reduction in

losses gives us confidence about the loss reduction trajectory for Wesco and

Southco. The other discom of Odisha – Nesco – is also likely to be awarded shortly.

Wesco and Southco circles

Source: OERC, Edelweiss Research

Wesco

Rourkela

Sambalpur

Bargarh

Balangir

Kalahandi

Southco

Berhumpur

Aska

Bhanjanagar

Rayagada

Joypur

Tata Group’s strong foothold in Odisha could

allow it to manoeuvre its distribution

business better

TATA POWER



AT&C losses

Power consumption breakdown (WESCO)


Power consumption breakdown (SOUTHCO)


ARR gap between WESCO and SOUTHCO

20

28

36

44

52

60

FY0

4

FY0

7

FY1

0

FY1

1

FY1

4

FY1

7

FY1

8

FY1

9

(%)

AT&C Losses

WESCO SOUTHCO

Domestic32%

Non Domestic9%

Agricultural5%

Industrial HT43%

Industrial LT2%

Public Lighting1%

Public Water Works

1%

Railways5%

Others2%

WESCO power consumption (FY19)

Domestic56%

Non Domestic12%

Agricultural4%

Industrial HT16%

Industrial LT1%

Public Lighting1%

Public Water Works

2% Railways5%

Others3%

SOUTHCO power consumption (FY19)

0.0

0.4

0.7

1.1

1.4

1.8

FY16 FY17 FY18 FY19 FY20

(IN

R/u

nit

)

ARR Gap

WESCO SOUTHCO


TATA POWER


Accumulated losses continue to rise


Distribution to remain the key pillar of stable profitability

Currently, private sector penetration in the distribution sector is less than 10%, with

just over 20mn customers with the private sector. This is expected to double over

next three–four years. We assess the overall opportunity of 30–35mn customers for

private players over the next five years, which implies an incremental PAT

opportunity of INR40–50bn. We expect TPCL to maintain a market share of 30–40%

in incremental bids.

TPCL’s existing distribution business

Source: Company, Edelweiss research

New distribution business potential

Source: Industry, Company, Edelweiss research

The distribution business contributes more than 25% to TPCL’s existing PAT, and this

is likely to stay at similar levels four years down the line. Notably, the existing

distribution business is also likely to log decent PAT growth on the back of impending

capex in Mumbai, Delhi and the CESU distribution circle.

Overall, we estimate a five-year CAGR of 15% in distribution business profits over

the next three–five years, out of which ~9% is likely from existing circles and the

remainder from new circles.

0 2 4 6 8 10 12 14

FY19

FY18

FY17

FY16

(INR bn)

Accumulated losses

SOUTHCO WESCO

0.7

1.8

0.2

2.7

2

1.8

9.2

0.0

2.0

4.0

6.0

8.0

10.0

Mumbai Delhi Ajmer CESU Wesco Southco Total

(mn

cu

sto

mer

s)

0.9

8.2

10.2

8.4

1.43

32.1

0

7

14

21

28

35

Odisha UP MP Raj JHK UT Total

(mn

cu

sto

mer

s)

TATA POWER



Distribution business to remain one of the key pillars of profitability


0.0

7.0

14.0

21.0

28.0

35.0

1.00

2.50

4.00

5.50

7.00

8.50

FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 FY25

(%)

(IN

R b

n)

Distribution profits Distribution as % of total profits (RHS)

Impact of Wesco and Southco


TATA POWER


Renewables – Covering full spectrum

A combination of the decline in capital cost, technological advancements and

climate change is powering up RE’s emergence as the preferred incremental

capacity globally. This combined with political push is redefining the power

sector landscape. In India, sweeping changes are relegating thermal power to

an also-ran, while the renewable wave continues to build up, and this is not a

temporary surge of a phenomenon.

Renewable energy has a broad range of products and services. Many players

have a presence in pockets along the spectrum, but TPCL is one company in

India with integrated product and service capabilities (except Wind) with it

offerings encompassing concept to commissioning of renewable projects.

Before evaluating the overall opportunity size (our proprietary workings),

particularly in solar, the energy value chain and TPCL’s offerings thereof are

worth a look.

Solar value chain

Source: Industry, Company, Edelweiss Research

As the illustration above shows, TPCL has a presence along the entire solar value

chain: module and cell manufacturing, EPC and O&M. This integration lends it a

competitive edge.

Moreover, the company has a presence in the upcoming battery-storage

technology, particularly in the wake of its recent pilot project. On the solar-wind

hybrid, TPCL is again one of the frontrunners. In solar rooftops, it is the market

leader, and traction is now visible as states have started implementing net metering.

In the consumer-oriented solar rooftop and solar pumps business, TPCL has more

than a quarter’s share in solar rooftop (in product and EPC) and a market share of

about 15% in solar pumps, courtesy its strong distribution channel and touch points

across the country.

Our detailed analysis pegs the overall opportunity at USD53bn over FY22–25E

divided across the renewable energy spectrum (except wind) – developer model,

EPC model, off-grid model – and other offerings.

Value chain

Manufacturing Equipment

Poly-Silicon

Cell & module manufacturing

Mounting BIPV

tracking

Silicon Wafers &

Ingots

Electrical Components

Project Development

EPC Wholesale

DistributionOperations & Maintenance

Technology – Centralized monitoring

Transmission Lines

With integrated product and service

capabilities, TPCL has one of the most

comprehensive offerings in the renewable

value chain

TATA POWER



A lowdown on Renewables opportunity


While the momentum is clearly in favour of renewables, both our calculation on

market opportunity size and TPCL’s market share are conservative, and there could

be possible upside on the same. The chart below depicts Tata Power’s market share

thereof.

Market size and TPCL's market share

Source: Industry, Company, Edelweiss Research

We strongly believe TPCL is best placed to capitalise on the renewable wave led by

its spread of offerings across the spectrum, leadership, and ability to cross-leverage

Tata Group customers and distribution touch points.

Solar EPC has gained significant traction – Warrants a re-rating

TPCL’s solar arm (TPSSL) is also engaged in the EPC of solar and hybrid projects for

the last couple of years and has gained significant traction with its order book

zooming 7x to INR93bn at the end of H1FY21. As much as ~50% of this pertains to

captive solar projects. The solar EPC business provides an annual opportunity of

INR120–150bn (10–12GW annual solar project awards). TPCL commands a nearly

double-digit market share in the highly fragmented solar EPC business.

Segment

Existing

Portfolio

(MW)

TPCL

Revenue

(INR bn)

TPCL

existing PAT

(INR bn)

Market

Opportunity

(MW)

Market

Opportunity

(INRbn)

TPCL

market

share (%)

TPCL

Revenue size

(INR bn)

TPCL PAT

(INR bn)Reasoning

Developer (Solar only) 2,600 22.5 2.6 48,000 284 11% 31.2 2.5 We expect 15GW awarding annually of which TPCL's addressable opportunity

will be 80%. 15% market share optically higher due to 1500MW UC capacity

which will come on stream in FY22. Average tariffs assumed at INR2.5/kWh

Utility EPC (Solar +Hybrid) 2,000 46 2.3 48,000 2,304 9% 207.4 16.6

Existing OB of INR90bn provides next 18M revenue visibil ity. Out of 70GW of

total awarding, TPCL's addressable opportunity could be 75%. Market share

seems low due to stil l evolving hybrid awarding. EBITDA and PAT margin

broadly converges at 8-9%.

Rooftop Solar

- Under PPA 28 - - 24,000 165 10% 16.5 1.3 Solar rooftop to gather pace across C&I segment meaningfully post COVID.

Expect a 10GW market over next 4 years as against 5GW existing .

- Under EPC 393 4.9 0.2 24,000 840 11% 92.4 8.3

Expect a INR300bn market opportunity over next 4 years . TPCL to remain a

dominant player

Solar pumps 2.5 0.15 2,880 383 8% 30.6 2.8

We expect 2mn pumps installation over the next three–four years, which pegs

the overall opportunity at INR400bn. We expect high single-digit market share

for TPCL.

Microgrids

Total 3,975 9% 378.0 31.5

FY22-25FY21e

Tata Power Solar EPC has the highest market

share, stable margins and low capex

requirements; this business is going to be

one of the biggest earnings (20% PAT mix)

delta creators


TATA POWER


TPCL has among highest market shares in utility EPC space

Source: Industry, Media articles, Company, Edelweiss Research

Sterling & Wilson Solar (SWS) has also one of the biggest order books in the solar

EPC segment. However, their order book is spread across geographies with India

making up just 10–15% (India order book INR12–14bn of the overall H1FY21 order

book of INR91bn). In our view, SWS, counterintuitively, faces relatively high risk due

to its geographical diversification, and this shows up in its uneven margins profile of

5–8% against TPCL’s steady margin profile of 8–9%. We’d highlight that Street should

consider a few things: i) Annual project awards are likely to increase to 15GW from

FY22–25, including hybrid wherein TPCL holds the numero uno position. ii) The

current business and order book are still not being valued fairly (in our view), which

implies huge scope for upside in Street’s valuation (SWS trades at 12x P/E).

0.0

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TATA POWER



TPSL takes a leap forward


SWS order book geographical breakdown


Key financials

Solar EPC (INR mn) FY20 FY21e FY22e FY23e FY24e FY25e

Industry ordering (MW) 10,500 8,500 10,200 12,240 13,464 13,464

TPCL intake (MW) 1,365 1,275 1,224 1,469 1,750 2,020

Revenue 14,420 46,589 69,156 83,545 86,742 90,023

EBITDA 1,476 3,261 5,187 7,101 8,241 9,002

PAT 1,146 2,264 3,685 4,936 5,826 6,413

Source: Edelweiss Research, Company

Solar rooftop market set to take off – TPCL a numero uno player

India’s goal for rooftop solar (RTS) energy is fixed at 40GW by CY22 under the

National Solar Mission. However, with total installation of ~6GW thus far, the RTS

segment looks unlikely to meet the target. At the heart of the problem is Discoms

myopic view of potential revenue loss should they go ahead with net metering

especially with the residential consumers which forms 30 per cent of the installed

capacity and has low appetite due to high capital cost (lower financing options

available) apart from lack of awareness.

However, the pandemic has led to acceleration of RTS adoption by commercial and

industrial customers (last 4M: 750MW installed) as it is one of the better ways to

cut operational costs, especially for businesses with high electricity cost (INR6-

7/kWh). These consumers with higher electricity tariffs are pre-emptively installing

more RTS systems as they are not bothered with net metering system (captive use).

Booming sectors such as agro, pharma, hospitals, and education have emerged as

the industries that are keen to go solar.

0

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40

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80

100

FY17 FY18 FY19 FY20 H1FY21

(IN

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SWS overall EPCOB Tata Power Solar EPC OB

India15%

MENA3%

Rest of Africa

7%

Americas22%

Europe3%

Australia50%

India SEA MENA Rest of AfricaAmericas Europe Australia


TATA POWER


Solar rooftop market to push the throttle

Source: Company, Industry, Edelweiss Research

Tata Power has a 10% market share in root top segment: TPCL has an installed base

of ~500MW in the country with 15,000 projects in residential rooftop (50–100MW)

and the balance in Commercial & Industrial space and few in institutional space. It

recently announced the expansion of its rooftop services to 90 cities across the

country. Tata Power Solar has already partnered with more than 100 institutions

such as schools, universities, non-profit organizations in implementing solar energy

systems to meet their power needs. Importantly, the company offers attractive

financing schemes for the rooftop projects as well, thereby enticing consumers.

Overall, we expect 25GW of cumulative installations over the next three–four

years, which pegs the overall opportunity size at INR900bn. We further expect

TPCL to gain a market share by 200–300bps over the next few years. Key financials

Solar Rooftop (INR

mn) FY20 FY21e FY22e FY23e FY24e FY25e

Industry ordering

(MW)

2,100

1,750

4,200

5,460

6,825

8,531

TPCL intake (MW) 147

140

395

573

819

1,024

Revenue

4,050

5,040 14,213 20,432 28,605 35,042

EBITDA 350

403

1,279

2,043

2,932

3,592

PAT

4

213

869

1,467

2,165

2,678


KUSUM a USD5bn solar pumps opportunity; TPCL a major beneficiary

TPCL’s solar arm (TPSSL) is engaged in solar water pumps business for a decade. In

the Budget 2020–21, the PM KUSUM Scheme was expanded to ‘solarise’ 2mn

standalone pumps (off grid) and 1.5mn grid-connected pumps over the next two–

three years. Till now, about 0.3mn solar pumps have been installed. The central

government gives a 30% subsidy; states accordingly give 30–50%. This along with

recent changes over three components (A, B and C) simplifies and expands the

scheme, which could be a big boost towards achieving 30.8GW worth of solar pumps

installation over the next two years.

(35.0)

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The RTS market is set for explosive growth

owing to C&I customers’ renewed urgency to

reduce operational cost of business with

easy financing options

TATA POWER



Solar pumps installation set to take off

Source: Company, Industry, Edelweiss Research

How solar pumps is beneficial: Solar-powered pumps are more economical owing

to lower operating and repair costs, and have minimal environmental impact relative

to pumps powered by other sources. In situations where power supply comes from

the grid and off-grid, on-grid or off-grid solar pumps are useful. As a result, higher

demand is generated in areas with inefficient power and grid-free electricity supply.

Apart from this lower maintenance, better crop productivity are some of the other

key benefits. Importantly, the central government reviews the KUSUM payment

scheme fortnightly, thereby keeping receivables under check.

Tata Power is positioned to tap into exponential growth: Tata Power Solar has a

complete range of products and has both DC and AC range of pumps suitable for

Surface, bore well, land and open-well applications. These pumps can be used for

various applications: agriculture irrigation, drinking water and replacement for hand

pumps, dual applications hand pumps, etc.

We expect 2mn pumps to be installed over the next three–four years, which pegs the

overall opportunity at INR400bn. We expect high single-digit market share for TPCL.

Key financials

Solar Pumps (INR mn) FY20 FY21e FY22e FY23e FY24e FY25e

Industry ordering (no.) 55,500 72,150 180,375 360,750 577,200 865,800

TPCL intake (no.) - 10,823 22,529 46,898 69,264 103,896

Revenue 2,850 2,706 5,660 11,842 17,577 26,497

EBITDA 420 271 538 1,243 1,890 2,848

PAT 20 122 300 854 1,359 2,113


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With a complete range of product profile

and robust touch points, TPCL’s solar pumps

are well geared for burgeoning opportunity

under the government’s KUSUM program


TATA POWER


EV charging: A niche business with leadership

position

India and EV: The story so far

India holds the notorious distinction of being home to 21 of the world’s 30 most

polluted cities in 2019. Air pollution in the country is 8–11x permissible levels

prescribed by the WHO. About two million pollution-related deaths in the country

per year is part of the collateral damage. Economic impacts are profound too; India

is estimated to have foregone 5.4% of its GDP growth opportunity due to the impact

of air pollution.

In this backdrop, adoption of cleaner technology, particularly in automobiles, seems

to be a no-brainer. However, adoption of EVs has been constrained by weak

customer appetite and infrastructure roadblocks. EVs launched in the past have

fallen short of expectations due to steep upfront costs, range, speed, battery life,

and battery technology. The result: EVs make up less than 1% of the total market

in India.

EV charging scenario in India

Source: Company

Nothing to write home about so far, but…

Policy push: Though government support has always existed in some ways, a

renewed push from both the central and state governments is improving the

odds of EV adoptiion. Through its FAME-II initiative, the central government has

allocated INR100bn over FY20–22 to subsidise the EV acquisition cost for end

consumers.

Besides, EV chargers have been put in the 5% GST slab to reduce the overall cost

of EV adoption. The government has also set an ambitious target of 30% EV

penetration by 2030 (versus a measly 1% now). Various state governments have

announced support to improve supply-side dynamics of the EV infrastructure.

TATA POWER



FAME-II incentives – Investment rollout plan for FY20–22

Source: KPMG, CII, Edelweiss Research

Private interest surging meaningfully: The private sector was so far not

enthused at the opportunity due to sub-optimal returns structure owing to low

utilisation expectations, high investments and lack of substantial government

support. However, large capital goods players (ABB, Siemens, BHEL) and power

utilities (NTPC, Tata Power, Power Grid) have shown interest in developing the

charging infrastructure in the country. Tata Power has already announced a

target to install 100,000 EV charging stations across the country by 2025.

Siemens is also working upon bringing the offering of its parent, a global major,

to the country.

What’s in it for TPCL?

From TPCL’s perspective, the EV charging opportunity is not about the increase in

core power generation demand (which would be suboptimal any case due to EVs’

high-energy efficiency). The niche in the EV space for power utilities is managing the

network access, billing, time of day tariffs (TOD) and others. In a way, it affords a

chance to tip the business orientation towards consumers. The idea really is to

manage the ecosystem and getting paid for the same. While this market is still

evolving, the overall opportunity size could be USD3–5bn over next seven–eight

years, assuming penetration of 30%.

The reason we believe TPCL could be a formidable charging network operator in the

country is its strong position in the two largest cities of the country: Delhi and

Mumbai. These cities would be the front runners of the EV story in India due to their

high pollution levels, dense populations (higher requirement of public charging

stations) and, last but not least, higher per capita income (EVs are way more

expensive than alternatives at present). Being a distribution licencee in these key

cities, TPCL can leverage its existing distribution network and customer reach for

the EV charging opportunity. Moreover, the group companies would add

substantial customer visibility. Most importantly, TPCL recognises the opportunity,

and is prepared to capture it.

All in all, the EV market is still evolving. We expect penetration of 7–8% by FY25 (and

accelerated penetration thereafter). We peg the overall opportunity size at

USD750mn over the next four years and expect TPCL’s market share to be 15–20%,

which could translate into additional PAT of INR1.5–2bn. The growth will be more

back-ended.

EV charger market: A USD3–5bn annual

opportunity. TPCL targets to manage the eco

system; easy charge APP a great showcase

of its strengths


TATA POWER


Gearing up

Source: Company

A phased plan to tap into…

Source: Company

Is everything on the drawing board still?

Governments, corporates and overly optimistic analysts have repeated the EV story

and potential for some time now. However, the story, more often than not, withers

off at the planning stage with execution currently making up just a tiny fraction of

the whole picture.

This time round, however, the start seems to be promising backed by firm

commitment from boardrooms. TPCL has already tied up with marquee brands

leveraging both the group companies as well as its early commitment to the

opportunity. The following initiatives are worth a mention.

TPCL launched India’s first 60kW superfast EV charging station in Agra in

partnership with MG Motor India.

It has partnered JLR for its first all-electric SUV in India, the Jaguar I-Pace. TPCL

will provide complete home and office charging solutions for the SUV.

https://www.livemint.com/auto-news/mg-motor-partners-with-tata-power-to-introduce-first-superfast-charging-station-in-agra-11606470206776.html

https://www.financialexpress.com/auto/electric-vehicles/by-march-2021-you-can-buy-the-jaguar-i-pace-all-electric-suv-range-charging-variants-india-launch-expected-price/2122997/

TATA POWER



Leveraging group companies: Tie-up with a truly global brand, JLR

Source: Edelweiss Research

Charging solutions for the Tata Nexon EV and the popular Tata Tigor EV.

With the distribution, scale and synergies of its group companies, TPCL is definitely

at the forefront of the EV game in India. Tata Motors’ plan of creating an e-mobility

ecosystem in the country – Tata uniEVerse – should go a long way in strengthening

the collaboration among group companies. This would help TPCL garner size – a very

important metric for other OEMs, which look for a complete infrastructure as they

gradually step into the EV industry.

Target to be a one-stop shop for consumer

Source: Company


TATA POWER


Home automation – A promising market

Home automation systems in India have witnessed an unprecedented demand in

recent years due to increased concerns about safety & security, particularly in urban

areas. In India, the home automation industry is currently USD2bn with 10mn smart

homes. This is expected to expand at a CAGR of 15–20% (conservative estimate) over

the next three–five years driven by: i) improved lifestyle increase in disposable

income of people; ii) lower cost of data connections; iii) rapid adoption of

digitalisation & technology aided by covid-19; iv) surge in awareness about smart

automated systems; and v) load balancing for residential rooftop solar are likely to

boost the adoption of home automation systems, thus driving the home automation

market growth.

Increase in government initiatives, such as Digital India, for the development of

smart cities has also fueled the adoption of home automation systems in India.

Adoption of wired and wiring technologies, smart lighting devices, and smart

security devices are the key focus areas in the home automation segment.

We peg the overall home automation opportunity at USD7–8bn over the next three–

five years as we expect faster penetration from 10mn homes currently to 25–30mn

(penetration at 30%).

Home automation opportunity over next five years

Source: Industry, Company, Edelweiss research

Tata Power positioned to leverage this opportunity

Although not a market leader, TPCL is overall well positioned to leverage the home

automation opportunity on the back of its presence in the ecosystem both directly

(via solar rooftop, distribution, etc) and as a group. The company has strong access

to customers and boasts domain expertise. TPCL will shortly launch its mobile app

‘EZ home’ in Delhi and Mumbai, showcasing its IoT-based demand side management

strength.

We expect TPCL’s market share to be between 3% and 5%, and expect home

automation to contribute INR20bn to its revenue and INR1.5bn to profit over next

the three–five years.

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adoption of residential rooftop solar and

rapid adoption of digitalisation

TATA POWER



Every incremental penny is ESG-accretive

ESG ratings have been gaining pre-eminence over the last few years and are now

integral to many business, credit and investing activities. As global AMC Janus

Handerson states, “ESG analysis is not just about what the company is doing today,

rather consideration of future trends is critically important”. This should inherently

include a disruptive change that can have significant implications for the company’s

future profitability or even its very existence.

How Tata Power stacks up on ESG: Tata Power’s 45% revenue mix is attributable to

thermal power, which is ESG-negative if not completely excluded from investing.

However, looking at TPCL’s current MSCI ESG ratings, it is BB (medium rating) and

FTSE Russell ESG rating is 3.6 with a percentile rank of 74.

Strategy focuses on sustainability : The company is determined to improve its ESG

rating by: i) steering clear of coal-based capacity; ii) phasing out current coal

generation on expiry of residual life/PPAs; and iii) expanding clean & green capacity

(solar/wind projects, solar rooftop, solar water pumps, etc) to grow to 60% by FY25.

They are now walking the renewable way. The thermal revenue mix is likely to come

down from current 45% to 25% by FY25. Importantly, acquisition of the 1,980MW

Prayagraj thermal plant was perhaps the company’s last investment in a thermal

coal-based power plant. This underscores TPCL’s focus on improving its ESG

governance/rating (current MSCI ESG rating is BB).

Renewable InvIT unlikely to be ESG-negative: Contrary to Street’s

perception/scepticism that the spinoff of renewable business (due to likely InvIT)

could lead to negative ESG rating as the thermal mix could increase, we believe this

is highly unlikely. And it is because the existing renewable (PPA revenues only)

revenue of INR22bn is already replaced with 2x revenue from the CESU distribution

business (100% consolidated with 49% minority interest).

Moreover, with a burgeoning renewable EPC order book, TPCL is likely to touch

INR50bn in EPC revenue, which provides INR20–25bn of incremental revenue in

FY22. The thermal revenue mix is likely to come down to 40% by FY22, 35% by FY23,

and 25% by FY25. Overall, we think that instead of being ESG-negative, the

company’s efforts and financials over the next two–three years should put it on a

higher pedestal, warranting an upgrade in its ESG rating. TPCL targets to enter the

Dow Jones Sustainability Index Emerging Market List by FY25.

ESG Revenue: Potential breakdown


ESG Revenue: Potential breakdown


291 -22

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ESG a very big focus area for TPCL and its

sunrise business is the game changer; the

company’s ratings are likely to get a leg-up


TATA POWER


Deleveraging, restructuring: A lowdown

In our view, Tata Sons is re-engineering the corporate DNA of all Tata Group

companies by recasting one business at a time. Tata Power’s transformation is

already underway, and Tata Son’s USD350mn equity infusion shows the intent and

confidence of the parent in Tata Power.

The journey of deleveraging and restructuring began about 18 months back, but

gained prominence seven–eight months ago. At the core of the strategy are two

factors: making the company simpler and more investible. The company is trying

to achieve the same by: i) simplifying and disentangling the business operations from

95 to 40 entities and merging Mundra/Tata Power Solar into Tata Power, ii) exiting

noncore businesses (80% already done with money realized); iii) moving away from

B2G to B2C; and iv) deleveraging the balance sheet to a more sustainable DE of

1.25:1.

We observe that the company is almost through with respect to its strategy

announcements and deleveraging (more than USD1bn in net debt reduction), the

biggest delta is likely to come with the advent of Renewable InvIT – which would

knock off USD1.8bn debt from the balance sheet. This is in advanced stages and

likely to be concluded by January 2021. There is a further potential of INR10-12bn

deleveraging via sale of non-core assets like Georgia and Zambia Hydro power but

excluding Tata Projects. A leaner and tighter balance sheet would prime TPCL for

future growth opportunities.

Deleveraging ride


435 8.5 16.1 2611 1

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TATA POWER



Outlook and valuation: Primed for growth TPCL’s last decade was marred by the debt/valuation trap due to multiple factors.

Now, its corporate DNA is being re-engineered: disentangling of business operations

(from 90 to 50 companies), deleveraging (to be slashed by 50% Mar-21) and rejigging

the growth model. Consequently, TPCL is now firmly on track to shed its tag of a

‘high leverage and complex company.

We have been a proponent of TPCL’s blazing transformation since May 2020

(Changing perceptions at CMP of INR30), which we reiterated in July (Going Green

at CMP of INR50) and then again in August (Realigning business at CMP of INR60).

And now once again, we reaffirm that TPCL is on the cusp of a mega transformation

by: i) shedding the legacy of overburden by meaningful deleveraging and

restructuring; and ii) realigning its growth model by tapping into business trends that

are niche and scalable. Besides, the Mundra resolution through compensatory tariff

is less relevant now as it could become self-sustainable by the end of FY21 (debt at

INR40bn). And beyond all this, with the one-time restructuring and deleveraging

exercise underway, it’s time to look beyond, i.e. sustainable and profitable growth.

All in all, for TPCL, we view the next decade as radically different from the past. The

significant business restructuring plan (including deleveraging) along with a rejig of

its growth model will have deep and wide-ranging financial and ESG implications—

hence a gradual re-rating would continue, effecting a change in investor perception

towards the company’s growth orientation.

We argue that restructuring and deleveraging have led to a one-time spike in the

stock price and that, hereon, realignment of its growth model will top the

sustainability index, which is more crucial and which—importantly—will lead to

the perception change beyond one-time benefits. Overall, the company is

becoming simpler and the stock more investible in our view.

We have revised our SoTP to INR95 (earlier –INR75) based on the following:

1) Higher valuation to the renewable business (EPC+RTS+ Pumps) from INR6

earlier to INR12 now. We are now assigning a 8x P/E to FY22E PAT of INR6.4bn.

2) A revision to our developer renewable portfolio to INR18/share (earlier:

INR12/share) led by lower interest rate scenario leading to an improved outlook

and demand for renewable InvIT. Assign a higher EV/EBITDA of 8x to FY22E

EBITDA (versus 6x).

3) INR6/share from the Odisha distribution business on an NPV basis.

In our view, there is an optional value of INR20–25/share through value unlocking

of Tata Projects and Tata Sons. TPCL has been among the best performers over the

last nine months, not only in the utilities space, but also among the Nifty 50 and Nifty

Midcap. We expect the stock to sustain its outperformance as Street captures the

company’s potential for growth from realignment and new businesses. In addition,

a 150% rally (30% in last one month) over the last seven months from the bottom

does not change our high conviction, rationale and long-term outlook on the stock.

The stock is still trading at less than 10x FY23E PE, and we estimate 32% potential

upside from current levels over the next 12–24 months. We recommend a ‘BUY’ on

dips strategy, and maintain TPCL as the top sectoral pick in our coverage universe.

Like in past, we expect consensus to follow suit.

https://www.edelweissresearch.com/Research/Download/6276




TATA POWER


Valuation band: One-year forward PE

Source: Bloomberg, Edelweiss Research

Valuation band: One-year forward PB


Valuation band: One-year forward EV/EBITDA


TPCL outperforming peers recently…potential being recognised


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NTPC Powergrid JSW Energy Tata Power CESC IEX Torrent Power

TATA POWER



Stock performance vis-a-vis benchmarks


Consensus estimates have seen upgrades recently, more to follow..

Source: Edelweiss Research, Bloomberg

Consensus versus Edelweiss estimates

Particulars (INR mn) Consensus Edelweiss % Difference

FY21E FY22E FY23E FY21E FY22E FY23E FY21E FY22E FY23E

Revenue 312,904 332,011 344,980 337,570 419,472 465,684 8% 26% 35%

YoY growth (%) 7% 6% 4% 16% 24% 11%

EBITDA 77,964 80,479 84,817 76,237 83,936 93,954 -2% 4% 11%

EBITDA Margin (%) 24.9% 24.2% 24.6% 22.6% 20.0% 20.2%

PAT 14,821 17,284 19,320 13,701 19,535 23,540 -8% 13% 22%

PAT margin (%) 4.7% 5.2% 5.6% 4.1% 4.7% 5.1%

EPS (INR) 4.6 5.4 6.0 4.3 6.1 7.4 -8% 13% 22%

Source: Edelweiss Research, Bloomberg

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Dec

-16

Dec

-17

Dec

-18

Dec

-19

Dec

-20

(reb

ase

to 1

00

)

Tata Power NIFTY NIFTY MIDCAP

45

52

59

66

73

80

May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20

(IN

R/s

har

e)

Consensus 12M TP


TATA POWER


Change in estimates


Tata Power SoTP


Rationale

Particulars (INR mn) FY21e FY22e FY23e FY21e FY22e FY23e

Revenue 3,25,711 3,42,675 3,54,873 3,37,570 4,19,472 4,65,684 1) Incorporating Wesco and Soutco (INR45bn)

2) Higher execution in TPSL (INR 35bn higher)

EBITDA 75,613 80,312 83,321 76,237 83,936 93,954 Mainly on account of new circles and TPSL

PAT 11,065 15,666 17,149 13,701 19,535 23,540 Interest cost benefits , two new circles and TPSL

higher exeuction

Earlier Now

Businesses Method FY22 Regulated

Equity

FY22

EBITDARoE CoE Multiple

Valuation

(INR mn)

Tata

Share (%)

Tata Share

(INR mn)

Per share

(INR)Rationale

Mumbai integrated Regulated biz P/B 44,801 17.0% 12.0% 1.5 69,150 100 69,150 22

Delhi Distribution P/B 16,910 17.0% 12.0% 1.5 26,100 51 13,311 4

Other Regulated business (Maithon,

IEL, Power links, Jojobera)

P/B 36,083 17.0% 12.0% 1.5 55,694 74 41,213 13

Odisha distribution biz NPV at 13% 12,500 35,527 51 18,119 6 Biz is not mature and P/Bv fails to

capture the high growth business.

Hence, prefer NPV for all 3 circles

Existing developer Renewable

business (2.7GW)

EV/EBITDA 22,287 8.0 58,848 100 58,848 18 Higher valuation led by lower interest

rate regime leading to imroved outlook

and demand for renewable projects

Tata Power Solar

(EPC+Rooftop+Pumps)

P/E 6,946 8.0 39,041 100 39,041 12 15% discount to listed peerset SWS

despite TPSSL being a higher margins

and ROE biz. 8x P/E to PAT (tax rate of

20%)

Mundra UMPP NPV at COE of 14% (24,744) 100 (24,744) (8) Assuming stable coal prices at USD70

KPC & Bumi NPV at WACC of 9.5% 123,633 30 37,090 12 Assuming stable profits at INR7bn with

cash cost at 58%

Prayagraj NPV at COE of 13% 8,859 26 2,303 1

Restructuring benefits NPV of tax synergies 18,225 100 18,225 6 Tax benefit of INR100bn over next 10

years due to merger

Cash & Investments FY20 1.0 27,937 100 27,937 9

Total 300,495 95

Derived valuation of 1.5x lead by

higher ROE's and in l ine with sector

valuations

TATA POWER



APPENDIX

Key financials by entity


FY20 FY21E FY22E FY23E FY20 FY21E FY22E FY23E FY20 FY21E FY22E FY23E

Standalone & key subsidiaries

Tata Power (Standalone) 70,750 63,473 69,901 71,871 29,218 27,560 29,919 31,782 5,280 10,349 12,560 13,513

CGPL (Mundra UMPP) 70,180 64,999 65,884 66,720 8,110 6,749 6,762 5,874 (8,910) (5,884) (2,981) (3,568)

MPL (Maithon Power) 27,410 28,155 28,225 28,296 8,940 8,509 8,481 8,453 3,380 3,091 3,107 3,122

TPDDL (Delhi Discom) 83,510 91,242 96,131 101,228 13,240 12,847 13,732 14,614 4,140 3,456 3,868 4,278

TPTCL (Power Trading) 2,380 2,107 2,170 2,235 630 641 641 640 410 395 395 394

Tata Power Solar (Solar Mfg) 21,410 54,335 89,029 115,819 2,140 3,880 6,946 10,327 1,230 2,489 4,738 7,136

TPREL (Renewable Power) 9,170 10,977 12,725 14,972 8,210 9,879 11,198 13,175 10 (87) 680 (79)

WREL (Renewable Power) 12,030 11,725 12,275 12,495 10,920 10,563 11,089 11,285 2,920 2,338 2,859 3,141

Odhisa discom 36,795 78,603 88,791 (723) (1,550) 2,864 (1,315) (4,028) (1,370)

Coal SPVs 1,920 500 500 (3,250) (3,000) (3,000) (3,000)

TERPL (Shipping Co) - 2,445 2,445 2,445 - 60 60 60 1,712 100 100 100

EEPL (Shipping Co) - - - - - 70 110 121 138 - - -

TPIPL (Overseas Investment Co) 420 271 538 1,243 260 - - - 180 27 54 124

Others 5,880 5,880 5,880 5,880 1,480 1,500 1,500 1,500 160 160 160 160

TOTAL - A 303,140 372,404 463,807 511,995 85,068 82,035 89,388 100,696 7,400 12,119 18,511 23,953

Joint Venture and Associates 9,530 7,315 7,998 8,093

TOTAL - B 303,140 372,404 463,807 511,995 85,068 82,035 89,388 100,696 16,930 19,434 26,509 32,046

Eliminations (24,090) (32,119) (41,353) (42,623) (5,160) (5,000) (5,000) (6,000) (4,150) (3,500) (3,750) (4,250)

Exceptional Items 2,262

Discontinued operations (490)

Minority Interest (2,991) (2,703) (3,438) (3,872)

TOTAL - C 279,050 340,285 422,454 469,372 79,908 77,035 84,388 94,696 11,561 13,231 19,321 23,924

Operating Income EBITDA PAT


TATA POWER


Additional Data Management

Chairman N. Chandrasekaran

MD & CEO Praveer Sinha

CFO R N Subramanyam

Non Executive Saurabh Agarwal

Auditor SRBC & CO LLP

Holdings – Top 10* % Holding % Holding

Icici Prudential 7.56 Franklin Temple 1.41

Life Insurance 6.03 First State Inv 1.24

Matthews Intern 5.17 Nippon Life Ind 1.08

New India Assur 1.63 Hdfc Life Insur 1.03

General Insuran 1.47 Vanguard Group 0.97

*Latest public data

Recent Company Research Date Title Price Reco

10-Nov-20 Strong showing; staying the course; Result Update

75 Buy

20-Aug-20 Tata Power - Tata Power 2.0: Realigning ; Company Update

75 Buy

12-Aug-20 Tata Power - Result Update Q1FY21 - Maki; Result Update

60 Buy

Recent Sector Research Date Name of Co./Sector Title

14-Dec-20 Power November – A brief pause; Sector Update

01-Dec-20 India Grid Trust PKTCL acquisition: Surprising, strategic; Company Update

10-Nov-20 Power Demand holding up; October optically hig; Sector Update

Rating Interpretation

Source: Bloomberg, Edelweiss research

Daily Volume

Source: Bloomberg

Rating Distribution: Edelweiss Research Coverage

Buy Hold Reduce Total

Rating Distribution* 162 64 14 240

>50bn >10bn and <50bn <10bn Total

Market Cap (INR) 179 63 6 248

* stocks under review

Rating Rationale

Rating Expected absolute returns over 12 months

Buy: >15%

Hold: >15% and <-5%

Reduce: <-5%

TP101

TP101

TP87

25

45

65

85

105

125

Dec-17 Jun-18 Dec-18 Jun-19 Dec-19 Jun-20

(IN

R)

TPWR IN Equity Buy Hold Reduce0

35

70

105

140

175

Dec-17 Jun-18 Dec-18 Jun-19 Dec-19 Jun-20

(Mn

)

TATA POWER



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TATA POWER


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KEY DATA From a utility to growth play - Business Standard

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