Tata Power share price rallies 9% today on merger proposal, Q1 results; more than doubles in 3 months

The company also announced its three wholly-owned subsidiaries, Coastal Gujarat Power Ltd (CGPL), Tata Power Solar Systems (TPSSL) and Af-Taab Investment Company (Af-Taab) are proposed to be merged with the parent company

Tata Power share price soared over 9 per cent to hit day’s high of Rs 57.85 apiece on BSE, a day after the company clocked a 10 per cent on-year rise in consolidated net profit at Rs 268 crore in the April-June quarter. The company had posted a net profit of Rs 243 crore in the corresponding quarter of the preceding year. Research and brokerage firm Motilal Oswal Financial Services upgraded Tata Power to buy, with an upside of 25 per cent. “The approval of a tariff hike at Mundra, the merger of CGPL and Tata Power Solar with TPWR, and favourable InvIT valuations provide upsides,” the brokerage firm said. It has pegged a target price of Rs 66 apiece for the stock post April-June quarter earnings.

In a span of three months, Tata Power share price has rallied 114 per cent from Rs 27 apiece to Rs 57.85. Tata Power shares were trading 7.74 per cent higher at Rs 57.05 apiece, as compared to a 0.05 per cent fall in the benchmark S&P BSE Sensex. The company also announced its three wholly-owned subsidiaries, Coastal Gujarat Power Ltd (CGPL), Tata Power Solar Systems (TPSSL) and Af-Taab Investment Company (Af-Taab) are proposed to be merged with the parent company. “This merger, subject to necessary approvals, is part of a strategic initiative to simplify the group holding structure and a broader plan to set the company for future growth through fiscal consolidation and strengthening of the balance sheet,” it said in a statement. The merger aims to achieve the long-term objectives by facilitating efficient use of cash and making available corporate support to the businesses of the said wholly-owned subsidiaries as needed.

During the quarter, Tata Power maintained stable performance despite lower profits from solar EPC businesses mainly on account of lower financing cost and stable performance across all clusters. The company won new renewables bids totalling 220 MW. The sale of ships completed at $ 212.76 million. Solar EPC (engineering, procurement, and construction) order book stood at Rs 8,700 crore including GST. The company also reported strong cash generation due to strong collection and tighter control over working capital.

The brokerage firm further added that divestment-related measures (part receipt of International Shipping business, Arutmin, and Tata SED) and the infusion of Rs 26 billion from promoters would continue to aid debt reduction. “As we build-in expectations of normalization in its EPC businesses, we view the risk-reward as favourable at current levels,” it said