HDFC Securities upgrades Tata Power shares' rating on expectations of healthy Q3
2 min read . Updated: 11 Jan 2023, 11:59 AM IST
Premium- Tata Power could report an exceptional gain due to the CERC order in Q3 FY23, as per HDFC Securities
The power industry is expected to report 28.5% YoY earnings growth, owing to the strong generation growth (+7.3% YoY in Q3FY23) and improved coal availability, said domestic brokerage and research firm HDFC Securities in a note on the power sector.
“Peak power demand increased by 10% YoY during Q3FY23 to ~193GW, driven by the festive season. Coal inventory at power plants too improved significantly, led by increased usage of imported coal as the number of stations facing subcritical inventory level declined to 43 in Dec 2022," the note stated.
Tata Power could report an exceptional gain due to the CERC order in Q3 FY23, as per HDFC Securities. The brokerage expects the company's revenue to grow by 37% year-on-year (YoY) YoY to ₹149.5 bn, led by improved generation at the Mundra plant (+20.7% YoY to 3.4bn) and CERC’s favourable order, higher power demand across its distribution circles, and executions in its solar EPC segment.
Accordingly, net profit is expected to grow by 154.5% YoY to ₹10.8 bn, largely due to a fall in under-recovery at its Mundra station and a one-time benefit from the CERC order. The brokerage house has upgraded Tata Power shares' rating to Add from Reduce, with a target price of ₹243 apiece.
Tata Power, a power generation company, provides power supply from its various plants located across India. Shares of Tata Power are down about 12% in a year's period.
Last week, another brokerage DAM Capital highlighted in a note that Tata Power has increased its target in medium term towards renewables development portfolio and asset light clean businesses. Tata Power has also raised money from marquee financial investors to fund the immediate capital needs of the clean energy businesses. “In our opinion, Tata Power has the best green business portfolio. Plus, high coal international prices and expected Mundra resolution are positive for the company," the note stated.
Tata Power had said the recent CERC order would benefit its power plant at Mundra in Gujarat, which burns imported coal. The plant would recover the full cost incurred for supplying power under the emergency direction last year, it said in a statement.
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