Shares of Tata Power continued to lose nearly 12% in the last five trading sessions. Analysts believe that the sharp rally in Multibagger stock, which is up over 169% in the one-year period, leaves limited room for upside.
Tata Power has announced consolidation of all Green Businesses (RE) under its subsidiary Tata Power Renewable Energy (TPREL), and a binding agreement with the BlackRock-led consortium, culminating in the long-awaited disinvestment of stake in its renewable businesses.
“As per our estimates, the RE business is valued at ~12x EV/EBITDA based on full capacity commission (average of our FY23E/FY24E estimates). While this is higher than the valuation given to a renewable company recently listed through IPO, we believe that in the CMP, the deal is priced,” said brokerage ICICI Securities.
Nevertheless, the brokerage believes that the long-term potential of the company’s businesses is high as it is best positioned to participate in the RE capacity enhancement program of the Government of India and any discom privatization. ICICI Securities has resumed its coverage on Tata Power with a hold rating of Rs. 262. Mundra resolution and RE tendering and order pick-up are key near-term drivers.
According to another brokerage Edelweiss, the disappointment in the $4.5 billion RE deal is largely led (at negligible value) by EV-Infra and they believe the RE generation and EPC portfolios have rich valuations, which Could potentially re-rate the whole area.
“We believe, the Mundra resolution is on the cards with a difficult demand-supply situation. With a higher coal price scenario, these could be a potential trigger for the stock. While we remain structurally positive on Tata Power shares, a sharp rally leaves limited room for upside. We downgrade to ‘Hold’ with the revised target price of 265,” said Edelweiss’s note.
The views and recommendations given above are those of individual analysts or broking companies and not of Mint.