Tata Power announced that a consortium led by a consortium led by US-based BlackRock, including Mubadala, will invest 4,000 crore in its subsidiary Tata Power Renewable Energy Limited for over 10% equity stake. Tata Power shares fall over 4% 262 each on the BSE in early deals on Monday.
The first round of capital infusion is expected to be completed by June 2022 and the balance will be infused by the end of the current calendar year, Tata Power said in a statement.
“Tata Power has announced the consolidation of all green businesses (REs) under TPREL, and has announced a binding agreement with the BlackRock-led consortium. Stake sale to be 9.76-11.43% contingent on FY23 results and means that the pre-money equity value 310–370 bn (mid-point INR 340 bn) for TPREL,” brokerage Edelweiss said in a note.
In the deal sequence, the stock rose 20% in seven trading sessions. So, even though the deal is structurally positive, the brokerage expects the stock to close in the near term as triggers are playing well – with Mundra resolution and current coal prices improving earnings are the near term triggers.
“The deal value is slightly below our expectations. Nevertheless, this is a very positive development for Tata Power as it funds RE capex for the next three years, and the new structure optimizes capital deployment and future fundraising. Overall, the deal will fast-track RE growth,” the note said.
In its view, the fundraising is likely to provide substantial development capital for the next 4-5GW of RE capacity additions and 4GW of new manufacturing facilities.
“This will have a multiplier effect on earnings growth due to the integrated business model and will likely increase TPREL’s operating profit by 2.5-3x over the next three-four years. In addition, TPREL’s new structure will provide cash upstreaming, and leveraged management and fund-raising. will adapt to it,” Edelweiss’s note added.
The views and recommendations given above are those of individual analysts or broking companies and not of Mint.