Tata Power, India’s largest integrated power company, has seen a flurry of stock activity in September 2024. On September 10, its shares surged by 6%, only to slump by 2.11% the next day, settling at Rs. 435.80. Investors are now wondering if this drop presents an opportunity to enter the stock, or if there are better times ahead. Tata Power’s ambitious goals, including producing electricity completely through renewable sources and building 1 lakh EV charging stations by 2025, make it a compelling investment.
With a current PE ratio of 37.9, we’ll explore the company’s financial strength, its performance over the past few years, and whether this recent dip is an ideal entry point for both short- and long-term investors.First take a glance at the balance sheet dashboard below.
Table of Contents
Tata Power: A Brief Overview
Tata Power has a storied history as one of India’s most prominent power companies. Established over a century ago, the company now boasts an energy capacity of over 14,381 MW. It has a diversified power portfolio, including thermal, wind, hydro, and solar energy, reflecting its commitment to transitioning towards greener sources. Tata Power’s future strategy includes aggressive growth in renewable energy, with plans to achieve 70% of its total energy capacity from green sources by 2030.
The company is not only focused on generating power but also leads in electric vehicle (EV) infrastructure. Tata Power EZ Charge, its EV charging business, commands a 55% market share in public EV charging stations and 85% in home chargers, with over 4,900 public charging points already in place.
Financial Performance
Sales, Net Profit & Operating Profit
In the last few years, Tata Power has seen significant growth in revenue. According to the financial chart:
- Sales have shown a steady upward trend from Rs. 26,840 crore in March 2018 to Rs. 55,109 crore in March 2023. By March 2025, sales are predicted to hit Rs. 65,904 crore.
- Operating Profit increased from Rs. 2,295 crore in 2018 to Rs. 7,031 crore in 2023. It’s expected to rise further to Rs. 12,654 crore by March 2025.
- Net Profit, however, fluctuated, starting at Rs. 2,611 crore in 2018, dipping to Rs. 1,316 crore in 2020, before bouncing back to Rs. 4,280 crore in 2024, and projected to reach Rs. 4,590 crore in 2025.
Operating Profit Margin (OPM)
Tata Power’s OPM has generally improved over the years, moving from 8.55% in 2018 to a high of 21.27% in 2020 before stabilizing around 17.47% in 2024. The trend suggests that operating efficiencies are increasing, and it is expected to rise to 19.20% by 2025.
Earnings Per Share (EPS)
Earnings per share are a vital indicator for shareholders:
- EPS dropped from Rs. 8.90 in 2018 to Rs. 3.53 in 2020 but has since rebounded to Rs. 11.57 in March 2024.
- Analysts predict the EPS to grow to Rs. 12.41 by March 2025, reflecting improved profitability in the coming years.
Return on Equity (ROE)
Tata Power’s ROE dipped significantly in 2020 to 6.73%, but the company has since recovered:
- The ROE reached 13.23% in 2023, signaling a return to healthy profit margins. The predicted ROE for 2025 is 11.34%, indicating continued improvement, though at a slightly slower pace.
Asset & Liability Distribution
Asset Breakdown
- Fixed Assets: Rs. 67,210 crore
- CWIP (Capital Work in Progress): Rs. 11,561 crore
- Other Assets: Rs. 43,968 crore
- Investments: Rs. 16,316 crore
The company is heavily invested in expanding its infrastructure, particularly in the renewable sector.
Liability Breakdown
- Borrowings: Rs. 53,689 crore
- Other Liabilities: Rs. 53,010 crore
- Equity Capital: Rs. 320 crore
- Reserves: Rs. 32,036 crore
While the company’s borrowings are significant, the robust capital structure reflects Tata Power’s aggressive expansion strategy, particularly in renewable energy and infrastructure projects.
Long-Term Vision and Targets
Tata Power’s roadmap to 2030 is ambitious. The company aims to scale its energy production to 500 GW, with a strong focus on green energy. By 2030, 70% of its total capacity will come from renewable sources, and it expects to install 20,000 EV charging stations by FY28.
The company’s renewable capacity is growing rapidly, with 3.7 GW already under construction and another 5.5 GW achieved. The pumped hydro storage projects (PSP), like the Bhivpuri and Shirawta projects, will further enhance Tata Power’s green portfolio.
Tata Power Stock: Short-Term and Long-Term Targets
As of September 11, 2024, Tata Power is trading at Rs. 435.80, following a 2.11% slump. Given its current price and fundamentals, the stock’s PE ratio stands at 37.9, slightly higher compared to industry peers. However, its growth potential in the renewable sector makes it attractive for long-term investors.
- Short-Term Target (3 Months): Given the company’s recent performance and projected financial improvements, the stock could see a short-term target of Rs. 480, with a stop-loss at Rs. 415.
- Long-Term Target (1 Year): Over a longer horizon, Tata Power could reach Rs. 550-600, driven by its aggressive push into renewable energy and expanding EV infrastructure.
Conclusion
Tata Power’s recent slump after a 6% surge has caught the attention of investors looking for entry points. Given its strong commitment to renewable energy, growing EV infrastructure, and robust financial performance, Tata Power is well-positioned for long-term growth. The company’s focus on green energy, coupled with consistent financial improvement, makes it an attractive option for both short- and long-term investors. The current stock price of Rs. 435.80 offers a promising entry, with short-term targets in the Rs. 480 range and long-term targets between Rs. 550-600. Keep an eye on Tata Power, as it continues to lead India’s energy transition!
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