Tata Power is one of the India's largest integrated power company. So, it is engaged in the entire power value chain. This company being an integrated power company, it is engaged in all the three fields [in which a power company may operate] namely, generation, transmission and distribution.
The shares of the company has given multi bagger return in the past year. Now the million dollar question is, whether should we invest in this company or not. Let us look at the company deeper.
Overview of the company:
Generation capacity:
According to the company, the company along with its subsidiaries together has a generation capacity of 14,690 Mw of which 39% comes from clean energy sources. The clean energy sources which the company states here must be hydro, solar, wind and waste heat recovery energy.
Of the company's to capacity mix of 14,381 Mw, 8,860 Mw is thermal, 1,007 Mw is wind, 880 Mw is hydro, 443 Mw is waste heat recovery and 3,191 Mw of solar. Further, 3,760 Mw of renewable energy is under construction.
International presence:
The company also operates in Indonesia, Singapore, Bhutan and Zambia. In Indonesia the company has acquired 30% stake in PT Kalti Prima Coal [KPC] and has entered into an off take agreement with KPC.
Experience:
The company has more than hundred years of experience in the Indian power sector.
Public Private Partnership:
The company has entered into a Public Private Partnership [PPP] with Power Grid Corporation of India, for forming powerlink transmission that helps the company to evacuate power from Tala Hydro plant in Bhutan to Delhi. The company also has PPP with Damodar Valley Corporation for generation and development of 1050 Mw power project in Jharkhand.
Affordable power supply:
Another competitive advantage that the company has is, it is able to supply power at an affordable tarrif due to state of art hydro and thermal plants.
Transmission and distribution:
When it comes to power transmission, the company supplies to around 12.5 million customers across Delhi, Mumbai, Ajmer and Odisha, and manage a distribution network of about 4 lakh ckt kilometers and transmission network of about 4,194 kms across India.
Services offered:
Its services include generation of renewable and conventional energy, power transmission, distribution, EV charging infrastructure and roof top solar.
Fundamentals of the company:
- ROCE: 11.7%
- ROE: 12.6%
- Stock P/E:40.3
- Industry P/E: 25
- Debt-to-equity: 1.74
This company is a large cap and an asset intensive company. In the past 3 years the company's operating profit margin has been almost flat and also slightly declined. But they have increased their sales. It's profits grew by 133% in 3 years and its stock grew by a CAGR of 65%.
[All these numerical figures and ratios are taken from Screener website as on 24th April, 2024].
Conclusion:
Increasing power demand in the country:
The company operates in power industry which has a good demand [due to increasing power consumption ] and is expected to perform better in upcoming years. The main reason for this increase in power demand can be due to rise in population and urbanization and also heat waves in the country contributes to the rising power demand.
Further the company has planned to reduce thermal power generation and focus on increasing green energy like solar. The reason for this is to reduce carbon emissions and support the environment. This can reduce the company's operating expenses, generation of solar energy is comparatively less expensive than thermal.
According to the company, it aims to achieve 70% of clean and renewable energy by 2030 and 100% by 2045. For this, the company has planned to spend 45% of their capital to renewable sector.
The company is fundamentally strong and is one among the leaders in the segment.
Why Tata Power when there are Adani Power companies?
Even when it comes to Adani's power companies, they operate in separate companies for green energy, thermal and for transmission.
But Tata Power is an integrated power company which undertake generation, transmission and distribution. They also have a well diversified product portfolio. Further the fundamentals of Tata Power looks more attractive.
Plan for developing EV charging infrastructure:
Their plan to expand EV charging infrastructure is the highlight. Tata Motors is one of the leaders in EV car industry in India. So people think that, Tata Power might utilize the existing consumer base of Tata Motors for using EV charging stations of Tata Power by offering special offers exclusively for Tata EV owners. The reason for this expectation is Tesla, which offers EV charging stations with special offers for Tesla EV car owners.
My views about investing in this company:
This stock is suitable only for long-term investors. Being an asset intensive company, it will take time for stock appreciation.
I cannot recommend whether a person should hold this stock or not , as I'm not a SEBI registered advisor. But, if a person asks me whether will I invest in this company, the answer is yes. But if you wish to buy do your own research before investing and don't forget to consult a SEBI registered advisor for selecting the best stocks.
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