TATA POWER COMPANY LIMITED

TATA POWER COMPANY LIMITED

CASE STUDY

21-Aug-2021

ABOUT THE COMPANY CASE STUDY

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ABOUT THE COMPANY Case Study

Tata Power Company Limited, India’s largest integrated power company has a presence across the power value chain viz. generationof renewable as well as conventional power (including hydro and thermal energy), transmission & distribution and trading. In linewith the company's view on sustainable and clean energy development, Tata Power is steering the transformation of traditionalutilities to providers of integrated solutions by initiating new business models in EV (electric vehicle) charging, solar pumps androoftops, microgrids, home automation and smart meters.

Consolidated operations of the company can be categorised into four segments:

• Transmission and Distribution: It comprises of transmission and distribution network, sale of power to retail customers and powertrading business.

• Generation: Comprises of generation of power from hydroelectric sources and thermal sources (coal, gas and oil).

• Renewables: It comprises of generation of power from renewable energy sources, i.e., wind and solar. It also includes EPC(Engineering, Procurement and Construction) and maintenance services with respect to solar.

• Others: Comprising of project management contracts, infrastructure management services, property development, lease rent ofoil tanks, satellite communication and investment business.

As on 31st March, 2021, the company had 59 subsidiaries (of which 44 were wholly-owned), 33 joint ventures (JVs) and 5 associates.


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As on 31st March, 2021, the Tata Power group ofcompanies have a generation capacity of 12,808MW (Domestic - 12,321 MW and International -487 MW) based on various fuel sources.

Of the total installed capacity, the company(including its subsidiaries) has 69% from thermalgeneration sources and 31% of its capacity (inMW terms) in clean and green generationsources (hydro, wind, solar and waste heatrecovery).

The company is focused on increasing its cleanenergy percentage to 80% by 2030.

Segmental & regional installed capacity


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*Incl. net movement in Regulatory Deferral Balances

50%

32%

17%

1%

REVENUE FROM OPERATIONS* (FY21)

Transmission & Distribution of Power Generation Renewables Others

An update on the integrated solutions under its new business model isas under:

Its wholly-owned subsidiary, Tata Power Solar Systems Limited(TPSSL), is one of India’s largest utility-scale solar EPC company withpresence across 11 states in India and has an order book of over 2,800MW with a value of ~₹8,700 cr as on 31st March, 2021.

TP Renewables Microgrid Ltd (TPRMG) completed installation of 161microgrids with another 40 under installation.

It had 532 EV (electric vehicle) charging points across 92 cities as on31st March, 2021. In addition to its partnership with Tata Motors andJaguar Land Rover, in FY21, Tata Power partnered with MG Motors, fordeveloping EV charging infrastructure for their customers and dealers.

It sold 6,432 solar pumps in Q4, taking total sales in the year to 12,928.It is dedicated to set up ~1 million solar pumps by FY26.

It installed 79 MW worth ₹311 cr of rooftop solar in Q4 taking totalinstallations to 175 MW, worth ₹629 cr in FY21.


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Case StudyGROWTH

SALES GROWTH

5 Year CAGR: 1.9%

In FY21, the company reported net sales of ₹32,468cr, a growth of 11.4% as compared to FY20.

This was on account of increased order execution inlarge scale EPC projects, rooftop and solar business.

Additionally, the company acquired 51% stake inthree Odisha Distribution companies (Discoms),namely, TP Central Odisha Distribution Ltd., TPWestern Odisha Distribution Ltd. and TP SouthernOdisha Distribution Ltd.

In Q1 FY22, the sales grew by 54.5% YoY from ₹6,453cr to ₹9,968 cr.


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Case StudyGROWTH

EBITDA GROWTH

5 Year CAGR: 3.1%

EBITDA for FY21 was marginally lower by 2.8% YoY at₹7,539 cr.

The cost of power and raw material contributed amajor portion towards the increase in the operatingcosts. However, the reduction in fuel cost coupledwith changes in deferred regulatory balancesrestricted the decline in EBITDA.

In Q1 FY22, EBITDA increased to ₹2,187 cr from₹1,950 cr in Q1 FY21, a growth of 12.2%.

as


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Case StudyGROWTH

PAT GROWTH

5 Year CAGR: 0.4%

In FY21, the company reported a PAT of ₹611 cr, a de-growth of 21% YoY on account of an exceptionalcharge of ₹109 cr (disallowance of recovery ofstandby charges by Maharashtra ElectricityRegulatory Commission).

Its significant contribution comes from joint venturesand associates, which was ₹873 cr in FY21. Thisincluded the company’s stake in PT Kaltim Prima Coal(KPC), PT Baramulti Suksessarana Tbk (BSSR), PTNusa Tambang Pratama and Resurgent PowerVentures Pte. Ltd.

In Q1 FY22, PAT stood at ₹100 cr and thecontribution from associates and JVs was ₹366 crduring the quarter. The consolidated net profit grewby 74% YoY on account of steady operations of all itsother assets and businesses coupled with interestsaving from debt repayments.

GROWTH EDGE METER: 3An Edge Meter is a graded measurement of certain aspects of a company on a scale of 1 to 5, 5 denoting the highest rating. Since

judgement on equity is subjective because different people will have different expectation from their investments, it is better to study each aspect and give an individual grading to arrive at the final evaluation of a stock.


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Case StudyPROFITABILITY

EBITDA MARGINIn FY21, the company continued to maintain theEBITDA margin near the 23% mark.

The pace of transition from traditional to renewablesis a key monitorable for the margin profile.

For the quarter ended 31st March, 2021, the marginsremained at similar levels of ~24%.


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PAT MARGINIn FY21, the PAT margin was 1.73%. The jointventures and associates contributed a significantportion to the net profit of the company.

During the year, the company completed the sale ofits strategic engineering division (SED) to TataAdvanced Systems Ltd. (TASL) which was classified asdiscontinued operations.

Over the years, the power sector has been facingheadwinds on the profitability front, thereby, drivingthe need for cost reduction and revenueoptimization.


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ROCEThe company has been generating a steady ROCE inthe range of 7%-8%.


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ROEThe ROE for FY21 stood at 2.91%.

The company issued equity shares at ₹53 per sharefor an amount aggregating to ₹2,600 cr to Tata SonsPvt. Ltd. on 13th August, 2020.

PROFITABILITY EDGE METER: 2An Edge Meter is a graded measurement of certain aspects of a company on a scale of 1 to 5, 5 denoting the highest rating. Since



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Case StudyEFFICIENCY

CASH FLOWSThe company has been able to maintain asustainable cash flow from operations. Given thecapital intensive nature of the industry, depreciationand finance cost formed a major portion ofadjustments.

Cash flow from investing was positive on account ofproceeds from dividend received from joint ventures(₹1,846 cr in FY21) and sale of non-currentinvestments. The company also made a net purchaseof property, plant and equipment to the tune of₹1,787 cr.

The negative cash flow from financing was primarilydue to repayment of borrowing of ~₹6,000 cr andinterest payments of ~₹3,700 cr during the year.There was an inflow on account of issue of shares.


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WORKING CAPITAL CYCLEThe working capital cycle has remained negative overthe past 5 years.


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FREE CASH FLOWIn FY21, the free cash flow per share was ₹3.85.

The free cash flow increased from ₹2,271 cr in FY20to ₹2,539 cr in FY21.

The company expects the capex to be in the rangeof ₹7,000-₹8,000 cr in FY22, half of which would berenewables.


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ASSET TURNOVER RATIOOver the last few years, the asset turnover ratio hasbeen stable at 0.35x.

EFFICIENCY EDGE METER: 4An Edge Meter is a graded measurement of certain aspects of a company on a scale of 1 to 5, 5 denoting the highest rating. Since



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Case StudySOLVENCY

DEBT TO EQUITYThe metric improved during the year due torepayment of borrowings by the company throughdivestment of various assets and strategic fund raisefrom promoters.

The non-current borrowings in FY21 stood at₹30,045 cr and current borrowings reduced from₹11,844 cr in FY20 to ₹8,436 cr in FY21.

The company raised ₹2,600 cr by way of issue ofequity shares on preferential basis to Tata SonsPrivate Limited, helping in its objective ofdeleveraging.

During the quarter ended 30th June, 2021,capitalizing on the low interest regime, it prepaid₹1,500 crore of 11.4% perpetual debt, which wouldreduce its overall interest outgo.


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Case StudySOLVENCY

INTEREST COVERAGE RATIOIn FY21, the interest coverage ratio was 1.22x.

The company reduced its average interest cost to7.4% per annum in FY21 compared to 8.3% in FY20.In Q1 FY22, it further reduced to 6.95% on accountof selective prepayment of high cost debt.

Finance cost of the company in FY21 reduced due torepayment of loans from sale of non-core assets,issue of shares and lower rate of interest.


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Case StudySOLVENCY

CURRENT RATIOIn FY21, the current ratio stood at 0.84x.

As on 31st March 2021, the cash and cash equivalentsand bank balance stood at ₹6,113 cr.

SOLVENCY EDGE METER: 4An Edge Meter is a graded measurement of certain aspects of a company on a scale of 1 to 5, 5 denoting the highest rating. Since



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Case StudyVALUATION

PE RATIOTTM PE of Tata power stood at 30.79x

With the growth opportunities coming in from EVs,microgrids and solar space, Tata Power will beuniquely positioned to leverage its experience inorder to gain market share.


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Case StudyVALUATION

DIVIDEND YIELDThe company has been consistently paying dividends.

The directors of the company declared a dividend of₹1.55 per for the year ended 31st March, 2021.


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Case StudyVALUATION

TECHNICAL ANALYSISTata Power Company was on a downward spiralbetween January 2018 to May 2020 wherein thestock price fell from a high of ~₹100 to a low of ₹27.However, the stock has been showing significantstrength since then and has been able to test a highof ₹137 recently.

The stock is now trading above its 2014 high of ₹115and the level of ₹115 is likely to act as a support. Abreach of ₹115 might take the stock lower up to ₹95.On the upside, a move beyond ₹150 would act as acatalyst for increased bullish momentum, taking thestock to unchartered territory.

VALUATION EDGE METER: 4An Edge Meter is a graded measurement of certain aspects of a company on a scale of 1 to 5, 5 denoting the highest rating. Since



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Case StudyQUALITY

MANAGEMENTThe management plans to limit its exposure to coal-based projects and does not intend to expand itsexisting portfolio.

The management plans to invest in and promote thedevelopment of Charging Point Operators (CPOs) inthe next four years. It is investing towards SMARTgrid technologies such as smart meters, sensors, IOTsto make networks more efficient.

It is planning to sell its Home Automation productsthrough e-commerce platforms such as Amazon,Flipkart, Tata CLiQ and modern retail stores such asCroma.


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Case StudyQUALITY

SHAREHOLDING PATTERNThe promoter shareholding has been the same forthe last three quarters.

The shareholding of Tata Sons increased from 35.27%in FY20 to 45.21% in FY21.

FII holding for the quarter contracted from 12.17% to11.26%.

DII holding in Q4 FY21 also reduced to 17.16%.

Top Public Shareholding:-Life Insurance Corporation of India 5.04%Matthews Pacific Tiger Fund 3.68%ICICI Prudential Value Discovery Fund 1.68%General Insurance Corporation of India 1.18%


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Case StudyQUALITY

SECTOR POTENTIAL• The global energy storage market grew significantly even in the pandemic year, achieving record installations of 5.3 GW in 2020

from 3.4 GW in 2019, led by China, and followed by the US and Europe. It is expected to grow substantially in the next couple ofyears, with the Asia-Pacific region accounting for more than 50% of the global market share.

• Climate change is one of the biggest challenges of the 21st century, with the energy sector contributing 25% (Source: IPCC AR52014) to the global GHG emissions. As energy is an essential requirement for economic growth and societal wellbeing, renewableenergy (RE) is gaining prominence globally.

• Going forward, the emerging trend and general direction of growth in the renewables sectors would be in the form ofhybrid/round-the-clock RE (renewable energy) solutions. The hybrid solutions would include a combination of wind and solarplants along with some battery electric storage solutions (BESS).

• To propagate its twin priorities of agriculture and renewable energy, the Government of India is heavily focusing on distribution ofsolar water pumps. It aims to benefit 3.5 million farmers by providing them solar pumps with 60% subsidy through the PradhanMantri Kisan Urja Suraksha evam Utthaan Mahabhiyan (KUSUM) scheme. It is focussing on RE growth in alignment to thesustainability and carbon emission reduction targets with an intent to increase the RE capacity 3-fold from the targeted level of175 GW in 2022 to 450 GW by 2030.

• A complementary mix of policies is being carefully laid out by the Government of India to promote EV adoption in India. Presenceof a suitable public charging infrastructure is crucial for successful transformation of mobility towards EV in India.


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Case StudyQUALITY

COMPETITIVE LANDSCAPETata Power is an integrated player and other playersin the sector include Adani Green Energy Ltd., PowerGrid Corporation of India Ltd., Adani Power andCESC.

It has developed a technology roadmap withemphasis on evolving business opportunities. Theseinclude hydrogen as an energy source, carboncapture and valorisation, Energy as a Service (EaaS),Battery Storage, SMART metering solutions andgrowth in innovative solutions in renewables likehybrid, round the clock model, floating solar amongothers.


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Case StudyQUALITY

FUTURE OUTLOOK• Scale-up renewables, distribution, services and energy solutions businesses: It intends to increase the share of clean and green

energy in the company's portfolio to 80% by 2030. The management also plans to set up more than 1 lakh EV chargers across Indiaby FY26. It intends to increase its capacity to 25 GW capacity in FY25.

• Deleveraging balance sheet: It plans on reducing debt through divestment of non-core assets and strengthening of balance sheet.Additionally, it intends to adopt debt-light models through innovative financial engineering and re-structuring.

• Carbon emission management: It is consistently building on its innovative initiatives to reduce GHG (green house gases) emissionsand improve operational efficiency to reduce energy consumption. Also, aggressively grow its renewable energy based capacityincluding utility scale, microgrids and rooftop. It intends to attain carbon neutrality before 2050.

• Leverage digital platforms to drive new customer centric businesses: Establish digital platforms for new businesses like EVcharging, home automation and energy services. Leveraging data analytics to deliver customized solutions and value addedservices (VAS) to customers.

• Minimizing coal cost under recovery in CGPL: Optimising the coal cost under recovery through better coal sourcing, optimalblending and freight management.

• It recently acquired four distribution companies in Odisha through competitive bidding and expanded its customer base to 11.8million. This business vertical provides an opportunity to closely interact with its customers. It envisages to serve 40 millioncustomers by FY26.

QUALITY EDGE METER: 4 An Edge Meter is a graded measurement of certain aspects of a company on a scale of 1 to 5, 5 denoting the highest rating. Since



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Case StudyFINAL EDGE MATRIX

Edge Meter Aspects Grade

Growth

Profitability

Efficiency

Solvency

Valuation

Quality 4

TOTAL

The maximum grade for a company could be 30. Any company above grade 20 is worth considering. A grade below 15 is considered to be poor.

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4

4

4

2

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Case Study

THANK YOUThis document and the process of identifying the potential of a company has been produced only for learning purposes. Since

equity involves individual judgements, this analysis should be used for only learning enhancements and cannot be considered to be a recommendation on any stock or sector. Our knowledge team has limited understanding and we all are learning the art and

science behind this.

www.stockedge.com


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TATA POWER COMPANY LIMITED