Shares of Tata Power rallied more than 9 percent on Thursday after the company revealed its plans for business restructuring, reducing debt and doubling its profits by FY25.
The management outlined a plan for 15 percent revenue and 25 percent profit CAGR between FY20-25E. ROE target is 12 percent at least by FY25E from 6 percent. Tata Power also aims to reduce net debt to Rs 25,000 crore by the end of FY21 and sustain it at these levels.
According to the company’s investor presentation, it plans to expand distribution footprint nationally and leverage technology to expand rooftop solar and solar pumps.
The company plans to continue with its asset monetization plans by exiting non-core assets and InvIT for renewables. It expects the InvIT transaction to be completed this year.
It aims to create innovative, low carbon solutions for customers through ESCO, home automation and EV charging.
Global brokerage firm Jefferies maintained Underperform rating on Tata Power, with a target price of Rs 40.
Jefferies said that the recent rally in the stock factors in the positives of debt reduction but underestimates downside on lower returns on incremental CAPEX.
Jefferies highlighted that the company's management believes portfolio revenue may rise 3.6 times to Rs 900 crore FY25E on current and incremental wins.
The upside risk is a positive Mundra resolution, Jefferies said.
Brokerage Motilal Oswal said believes that the divestment-related measures and the infusion of Rs 2,600 crore from promoters would continue to aid debt reduction.
“As we build-in the expectations of normalization in its EPC business and some WC by FY22, we see the risk-reward as favorable. The approval of a tariff hike at Mundra, the merger of CGPL & Tata Power Solar with TPWR, and favorable InvIT valuations would provide upsides to our estimate,” the brokerage said.
It maintained Buy rating with a target price of Rs 66 per share.
The stock price of Tata Power surged over 9.7 percent to intraday high of Rs 62.30 on the BSE. At 2:30 pm, the shares were trading 8.46 percent higher at Rs 61.55 apiece.