Home » Research » Kotak Research Center » Stock Recommendation Tata Power Buy Target Price Rs 90
How it helps?
  • Zero maintenance charges
  • Zero fees for demat account opening
  • Volume based brokerage
Reach Us
Learn the art of Investing

Read More >


  • Stock Recommendation | Tata Power - BUY - Target price : Rs 90

    Publish date: OCTOBER 15, 2018

    Looking beyond Mundra. We hosted the management of Tata Power represented by their MD Mr Praveer Sinha for a non-deal roadshow, where the key focus of the management was (1) sale of non-core assets to allow de-leveraging of the balance, (2) minimizing losses at Mundra through a combination of fuel sourcing strategies and potential revision in tariffs as recommended by the high power committee, and (3) leveraging expertise across the power value chain and pursuing growth in renewable and distribution opportunities. Maintain BUY rating and target price of Rs90/share.

    Tata power has improved its net-debt to equity to 2.6X in FY2018 from 2.7 in FY2017 that will likely reduce to 2.3X upon completion of asset sales of Rs50 bn announced so far. The assets sales announced so far include Rs2 bn from Indian Energy Exchange, Rs21.5 bn from Tata Communications and another Rs22.3 bn from the sale of its strategic engineering division. Of the proposed divestments, Rs25 bn has been realized till date. Management highlighted such monetization of low dividend yielding assets would help the company to improve its RoE and EPS and provide a stronger balance sheet to pursue inorganic growth opportunities.
    Management further highlighted another set of non-core assets such as Tata Projects, Nelco and Tata Ceramics that have been held for sale, besides the balance funds (US$250 mn) to be received from the sale of coal mines in Indonesia. Overall the company is targeting debt reduction of US$1.5 bn through the sale of non-core assets that will likely be concluded by March 2020E.
    CGPL is pursuing new measures in its efforts to reduce losses at Mundra due to higher coal cost including (1) a shift to lower GCV coal, (2) potential procurement of coal from Russia, and (3) benefit from the revision in tariff arrangement as proposed by the high power committee. Management highlighted that the earnings from coal mines in Indonesia more than off-set the losses at Mundra as has been seen over the years.
    Tata Power targets to become one of the largest renewable players in the country and to have 50% of its total generation coming from renewable capacities going ahead. TPWR currently has a thermal portfolio of 7.6 GW and an operational renewable portfolio of 3.1 GW. Apart from renewables, the company also seeks growth opportunities in inter-state transmission infrastructure as well as through privatization of distribution circles.
    Rising coal prices augur well for Tata Power’s consolidated earnings. This coupled with divestment of non-core investments will further aid deleveraging of the balance sheet. Maintain ADD rating with a target price of Rs90/share.

    The High Power Committee constituted by the state of Gujarat has recommended an equitable distribution of the burden, on account of the change in Indonesian laws that has led to Mundra UMPP making cumulative losses of Rs82 bn and with Tata Power having contributed Rs116 bn towards the project. HPC recommends (1) pass through of fuel cost with a cap at US$110/ton on a prospective basis, (2) reduction in capacity charge by Rs0.2/kwh by waiver on debt by the lenders (Rs42 bn on debt of Rs112 bn). In lieu of the increased fuel charge (partly compensated by capacity charge reduction) the consumers get (1) the option to extend the PPA by another ten years on current terms, (2) increase in the normative plant availability to 90% (from 80%) and (3) sharing of profits on incremental coal supplied from Indonesian mines to the power plant.
    HPC is of the view that CGPL’s tariff even after the increased fuel cost is much lower than current market price of power as well as tariffs offered under long-term arrangements. Further, if the plant were to turn insolvent, the consumers would lose the benefit of low cost power owing to the risk of termination of PPA. The regulatory route involves amending of the terms of the PPA by all parties concerned and subsequent adoption of the same by the concerned regulatory commission, that would still be within the framework of the order of the Supreme Court that essentially ruled that the extant PPA does not allow for compensation under ‘Change in Law’ or ‘Force Majeure’. HPC also draws on examples from the aviation and telecom sector where terms of competitive bids were subsequently amended owing to commercial unviability of the bids under original terms of agreement. We note that CGPL has losses of Rs11 bn as of FY2018, and any resolution that leads to reduction in losses in substantially favorable for TPWR.

    Definitions of ratings

    BUY - We expect this stock to deliver more than 15% returns over the next 12 months.
    ADD - We expect this stock to deliver 5-15% returns over the next 12 months.
    REDUCE - We expect this stock to deliver -5-+5% returns over the next 12 months.
    SELL - We expect this stock to deliver

    Our target prices are also on a 12-month horizon basis.


    Other definitions

    Coverage view. The coverage view represents each analyst's overall fundamental outlook on the Sector. The coverage view will consist of one of the following designations: Attractive, Neutral, Cautious.


    Other ratings/identifiers

    NR = Not Rated. The investment rating and target price, if any, have been suspended temporarily. Such suspension is in compliance with applicable regulation(s) and/or Kotak Securities policies in circumstances when Kotak Securities or its affiliates is acting in an advisory capacity in a merger or strategic transaction involving this company and in certain other circumstances.
    CS = Coverage Suspended. Kotak Securities has suspended coverage of this company.
    NC = Not Covered. Kotak Securities does not cover this company.
    RS = Rating Suspended. Kotak Securities Research has suspended the investment rating and price target, if any, for this stock, because there is not a sufficient fundamental basis for determining an investment rating or target. The previous investment rating and price target, if any, are no longer in effect for this stock and should not be relied upon.
    NA = Not Available or Not Applicable. The information is not available for display or is not applicable.
    NM = Not Meaningful. The information is not meaningful and is therefore excluded.


    Corporate Office
    Kotak Securities Ltd.
    27 BKC, Plot No. C-27, "G Block"
    Bandra Kurla Complex, Bandra (E)
    Mumbai 400 051, India
    Tel: +91-22-43360000
    Overseas Affiliates
    Kotak Mahindra (UK) Ltd
    8th Floor, Portsoken House
    155-157 Minories
    London EC3N 1LS
    Tel: +44-20-7977-6900
    Kotak Mahindra Inc
    369 Lexington Avenue
    28th Floor, New York
    NY 10017, USA
    Tel:+1 212 600 8856

    Copyright 2018 Kotak Institutional Equities (Kotak Securities Limited). All rights reserved.
    1. Note that the research analysts contributing to this report may not be registered/qualified as research analysts with FINRA; and
    2. Such research analysts may not be associated persons of Kotak Mahindra Inc and therefore, may not be subject to NASD Rule 2711 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.
    3. Any U.S. recipients of the research who wish to effect transactions in any security covered by the report should do so with or through Kotak Mahindra Inc and (ii) any transactions in the securities covered by the research by U.S. recipients must be effected only through Kotak Mahindra Inc at vinay.goenka@kotak.com.
    This report is distributed in Singapore by Kotak Mahindra (UK) Limited (Singapore Branch) to institutional investors, accredited investors or expert investors only as defined under the Securities and Futures Act. Recipients of this analysis / report are to contact Kotak Mahindra (UK) Limited (Singapore Branch) (16 Raffles Quay, #35-02/03, Hong Leong Building, Singapore 048581) in respect of any matters arising from, or in connection with, this analysis / report. Kotak Mahindra (UK) Limited (Singapore Branch) is regulated by the Monetary Authority of Singapore.
    Kotak Securities Limited established in 1994, is a subsidiary of Kotak Mahindra Bank Limited. Kotak Securities is one of India's largest brokerage and distribution house.
    Kotak Securities Limited is a corporate trading and clearing member of Bombay Stock Exchange Limited (BSE), National Stock Exchange of India Limited (NSE), Metropolitan Stock Exchange of India Limited (MSE). Our businesses include stock broking, services rendered in connection with distribution of primary market issues and financial products like mutual funds and fixed deposits, depository services and Portfolio Management.
    Kotak Securities Limited is also a depository participant with National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL). Kotak Securities Limited is also registered with Insurance Regulatory and Development Authority as Corporate Agent for Kotak Mahindra Old Mutual Life Insurance Limited and is also a Mutual Fund Advisor registered with Association of Mutual Funds in India (AMFI). We are registered as a Research Analyst under SEBI (Research Analyst) Regulations, 2014.
    We hereby declare that our activities were neither suspended nor we have defaulted with any stock exchange authority with whom we are registered in last five years. However SEBI, Exchanges and Depositories have conducted the routine inspection and based on their observations have issued advise/warning/deficiency letters/ or levied minor penalty on KSL for certain operational deviations. We have not been debarred from doing business by any Stock Exchange / SEBI or any other authorities; nor has our certificate of registration been cancelled by SEBI at any point of time.
    We offer our research services to clients as well as our prospects.
    This document is not for public distribution and has been furnished to you solely for your information and must not be reproduced or redistributed to any other person. Persons into whose possession this document may come are required to observe these restrictions.
    This material is for the personal information of the authorized recipient, and we are not soliciting any action based upon it. This report is not to be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. It is for the general information of clients of Kotak Securities Ltd. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients.
    We have reviewed the report, and in so far as it includes current or historical information, it is believed to be reliable though its accuracy or completeness cannot be guaranteed. Neither Kotak Securities Limited, nor any person connected with it, accepts any liability arising from the use of this document. The recipients of this material should rely on their own investigations and take their own professional advice. Price and value of the investments referred to in this material may go up or down. Past performance is not a guide for future performance. Certain transactions -including those involving futures, options and other derivatives as well as non-investment grade securities - involve substantial risk and are not suitable for all investors. Reports based on technical analysis centers on studying charts of a stock's price movement and trading volume, as opposed to focusing on a company's fundamentals and as such, may not match with a report on a company's fundamentals.
    Opinions expressed are our current opinions as of the date appearing on this material only. While we endeavor to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance or other reasons that prevent us from doing so. Prospective investors and others are cautioned that any forward-looking statements are not predictions and may be subject to change without notice. Our proprietary trading and investment businesses may make investment decisions that are inconsistent with the recommendations expressed herein.
    Kotak Securities Limited has two independent equity research groups: Institutional Equities and Private Client Group. This report has been prepared by the Private Client Group. The views and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating, target price of the Institutional Equities Research Group of Kotak Securities Limited.
    We and our affiliates/associates, officers, directors, and employees, Research Analyst(including relatives) worldwide may: (a) from time to time, have long or short positions in, and buy or sell the securities thereof, of company (ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the subject company/company (ies) discussed herein or act as advisor or lender / borrower to such company (ies) or have other potential/material conflict of interest with respect to any recommendation and related information and opinions at the time of publication of Research Report or at the time of public appearance. Kotak Securities Limited (KSL) may have proprietary long/short position in the above mentioned scrip(s) and therefore may be considered as interested. The views provided herein are general in nature and does not consider risk appetite or investment objective of particular investor; readers are requested to take independent professional advice before investing. This should not be construed as invitation or solicitation to do business with KSL. Kotak Securities Limited is also a Portfolio Manager. Portfolio Management Team (PMS) takes its investment decisions independent of the PCG research and accordingly PMS may have positions contrary to the PCG research recommendation. Kotak Securities Limited does not provide any promise or assurance of favourable view for a particular industry or sector or business group in any manner. The investor is requested to take into consideration all the risk factors including their financial condition, suitability to risk return profile and take professional advice before investing.
    The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report.
    No part of this material may be duplicated in any form and/or redistributed without Kotak Securities' prior written consent. Details of Associates are available on www.kotak.com
    Research Analyst has served as an officer, director or employee of subject company(ies): No
    We or our associates may have received compensation from the subject company(ies) in the past 12 months.
    We or our associates have managed or co-managed public offering of securities for the subject company(ies) in the past 12 months: No
    We or our associates may have received compensation for investment banking or merchant banking or brokerage services from the subject company(ies) in the past 12 months. We or our associates may have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company(ies) in the past 12 months. We or our associates may have received compensation or other benefits from the subject company(ies) or third party in connection with the research report. Our associates may have financial interest in the subject company(ies).
    Research Analyst or his/her relative's financial interest in the subject company(ies): No
    Kotak Securities Limited has financial interest in the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report: Yes
    Our associates may have actual/beneficial ownership of 1% or more securities of the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report.
    Research Analyst or his/her relatives has actual/beneficial ownership of 1% or more securities of the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report: No.
    Kotak Securities Limited has actual/beneficial ownership of 1% or more securities of the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report: No
    Subject company(ies) may have been client during twelve months preceding the date of distribution of the research report.
    "A graph of daily closing prices of securities is available at https://www.nseindia.com/ChartApp/install/charts/mainpage.jsp and http://economictimes.indiatimes.com/markets/stocks/stock-quotes. (Choose a company from the list on the browser and select the "three years" icon in the price chart)."
    Kotak Securities Limited. Registered Office: 27 BKC, C 27, G Block, Bandra Kurla Complex, Bandra (E), Mumbai 400051. CIN: U99999MH1994PLC134051, Telephone No.: +22 43360000, Fax No.: +22 67132430. Website: www.kotak.com/www.kotaksecurities.com. Correspondence Address: Infinity IT Park, Bldg. No 21, Opp. Film City Road, A K Vaidya Marg, Malad (East), Mumbai 400097. Telephone No: 42856825. SEBI Registration No: NSE INB/INF/INE 230808130, BSE INB 010808153/INF 011133230, MSE INE 260808130/INB 260808135/INF 260808135, AMFI ARN 0164, PMS INP000000258 and Research Analyst INH000000586. NSDL/CDSL: IN-DP-NSDL-23-97. Our research should not be considered as an advertisement or advice, professional or otherwise. The investor is requested to take into consideration all the risk factors including their financial condition, suitability to risk return profile and the like and take professional advice before investing. Investments in securities market are subject to market risks, read all the related documents carefully before investing. Derivatives are a sophisticated investment device. The investor is requested to take into consideration all the risk factors before actually trading in derivative contracts. Compliance Officer Details: Mr. Manoj Agarwal. Call: 022 - 4285 8484, or Email: ks.compliance@kotak.com.
    In case you require any clarification or have any concern, kindly write to us at below email ids:
    ● Level 1: For Trading related queries, contact our customer service at 'service.securities@kotak.com' and for demat account related queries contact us at ks.demat@kotak.com or call us on: Toll free numbers 18002099191 / 1800222299, Offline Customers - 18002099292
    ● Level 2: If you do not receive a satisfactory response at Level 1 within 3 working days, you may write to us at ks.escalation@kotak.com or call us on 022-42858445 and if you feel you are still unheard, write to our customer service HOD at ks.servicehead@kotak.com or call us on 022-42858208.
    ● Level 3: If you still have not received a satisfactory response at Level 2 within 3 working days, you may contact our Compliance Officer (Mr. Manoj Agarwal) at ks.compliance@kotak.com or call on 91- (022) 4285 8484.
    ● Level 4: If you have not received a satisfactory response at Level 3 within 7 working days, you may also approach CEO (Mr. Kamlesh Rao) at ceo.ks@kotak.com or call on 91- (022) 4285 8301.
    First Cut notes published on this site are for information purposes only. They represent early notations and responses by analysts to recent events. Data in the notes may not have been verified by us and investors should not act upon any data or views in these notes. Most First Cut notes, but not necessarily all, will be followed by final research reports on the subject. There could be variance between the First cut note and the final research note on any subject, in which case the contents of the final research note would prevail. We accept no liability for the contents of the First Cut Notes. For further disclosure please view https://kie.kotak.com/kinsite/index.php

    Also read

    Don't have an account? Click here to open an account

    Click here to go back