Tata Power, a pioneer among private electricity generation, transmission, distribution and trading companies, reported better-than-expected results in 2017-18.
Analysts expect its good performance to continue in the coming years as well as it will be the biggest beneficiary of the growth being witnessed in the power sector.
Tata Power is looking to make the most of the government’s renewable energy push and aims to increase its non-fossil fuelbased power generation portfolio to around 50% of its capacity from the current 30%. Though the recent fall in solar and wind power rates— both are down to Rs 2.9 per unit—may hurt its renewable energy expansion plans, Tata Power is continuing with its rooftop solar business because of a major fall in prices of rooftop solar kits.
Due to its success in Delhi and Ajmer, the company is expecting to benefit from privatisation of state electricity distribution companies. Besides their financial woes, state electricity distribution companies have been finding it difficult to meet distribution loss targets. The recent move to penalise them for load shedding is impacting them negatively as well and may result in some privatisation in the coming years. Transmission is now the biggest bottleneck in power sector and the government is focusing on resolving transmission woes to meet its target of providing uninterrupted power to all households by 2022. Tata Power is betting big on the opportunity in the transmission business and is expected to capture a major share of the close to 80,000 km of power lines that are to be added between 2018-19 and 2021-22.
Tata Power plans to tackle its Mundra losses by reducing its coal cost. Since lower caloric coal is available at 7% discount to varieties, Tata Power is planing on increasing the use of lower caloric coal from 10% to 35%, bringing down its coal cost by 3-4%. It also plans to shift its coal import from Indonesia to Russia to reduce the cost of imported coal. Though rising coal prices is putting pressure on its power generation business, it is benefitting from its coal joint ventures— they have contributed around Rs 1,000 crore to its consolidated profit in 2017-18.
Tata Power is continuing with debt and interest cost reduction and its net debt-equity ratio is down from 3.09 in 2016-17 to 2.48 in 2017-18. The company is planning to bring it down further to 2–2.25 in 2018-19. Divestment of non-core investments worth Rs 4,300 crore is already in the pipeline to help achieve this target. Refinancing too has helped Tata Power cut interest costs by 45 basis points in 2017-18.
Performance of Tata Power compared with the Sensex. Stock price and index value normalised to a base of 100. Source: ETIG database & Bloomberg
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