Mumbai: JP Morgan has downgraded Company to neutral from overweight as the stock is pricing in benefits from new businesses.
"Tata Power is one of the few listed plays on India's de-carbonisation with investments in renewable projects, downstream solar and EV (electric vehicle) charging...the stock is pricing in future earnings/option value for these and implying $6 billion valuation discovery for a transaction potentially due in the next 12 months," it said.
JP Morgan said globally environment, social and governance or ESG-positive businesses are trading at premium multiples, particularly EV charging plays where Tata Power has made significant progress. However, there is no contribution at the profit and loss level yet, said JP Morgan.
Shares of Tata Power ended up 1.65% at ₹242.85 on Thursday. The brokerage has also revised the target price to ₹225 by March 2023 instead of the earlier target price of ₹155 by March 2022.
"Given the large opportunity size, the stock seems to be pricing these new businesses in well ahead of execution."
The brokerage said revision in target price is because it has factored in the opportunity size. JP Morgan estimates a 30% compounded growth in earnings per share in FY21-FY25.
"The steady improvement in operating cash flow is likely to fund the equity requirement for growth capex along with potential asset monetisation," said JP Morgan.
"Tata Power is one of the few listed plays on India's de-carbonisation with investments in renewable projects, downstream solar and EV (electric vehicle) charging...the stock is pricing in future earnings/option value for these and implying $6 billion valuation discovery for a transaction potentially due in the next 12 months," it said.
JP Morgan said globally environment, social and governance or ESG-positive businesses are trading at premium multiples, particularly EV charging plays where Tata Power has made significant progress. However, there is no contribution at the profit and loss level yet, said JP Morgan.
Shares of Tata Power ended up 1.65% at ₹242.85 on Thursday. The brokerage has also revised the target price to ₹225 by March 2023 instead of the earlier target price of ₹155 by March 2022.
"Given the large opportunity size, the stock seems to be pricing these new businesses in well ahead of execution."
The brokerage said revision in target price is because it has factored in the opportunity size. JP Morgan estimates a 30% compounded growth in earnings per share in FY21-FY25.
"The steady improvement in operating cash flow is likely to fund the equity requirement for growth capex along with potential asset monetisation," said JP Morgan.
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