Tata Power stock has been one of the best performing Indian stocks in 2021. In 2021, the Year-to-Date Return for Tata Power stock has been 188% (as of October 17, 2021). I am definitely NOT out of my mind when I say Tata Power will almost become 5 fold from here by 2023 from the current price of ₹222. In my opinion, the Tata Power stock price target by the end of 2023 is ₹1000 and by 2025, it’s ₹2000, a ten-fold increase in the share price from 2021.
I have several bullish theses on the Infrastructure, Renewable energy, and Electric Vehicle (EV) segment in India. Tata Power stock is an amalgamation of all three sectors. This article will provide a logical analysis for the ₹1000 price target for Tata Power by 2023.
- 1.Tata Power Solar Business
- 2. EV Charging Stations by Tata Power
- 3. Traditional Power Generation and Distribution Business
- 4. Tata Power Balance Sheet
1.Tata Power Solar Business
Tata Power recently delivered one of the best quarters in a decade in terms of its operating margin and profit. The slide below is taken from the ”Investor Relations” segment of Tata Power.
You can see from the Q1 FY 22 results slide above that Tata Power won a contract for an 84 MW Rooftop Solar Project in Kerela worth ₹400 crores.
Tata Power Solar Business is booming significantly, especially in the solar rooftop projects and solar pump segment. It also won a 150 MW project from NTPC worth ₹686 crores.
In 2021, it has reported an order pipeline backlog of over ₹10,000 Crores/month consistently which shows that the demand in the solar power segment is very robust and strong.
Let’s look at the Solar Business of Tata Power in more detail.
1.1. Tata Power Solar Business Growth
As of June 2021, Tata Power has a solar capacity of 2155 MW. The order pipeline of Tata Power Solar stands at approximately 2800 MW.
Tata Power aims to increase its solar capacity by 5 times by 2025. This means the solar capacity of Tata Power is expected to reach 11,000 MW by 2025.
The revenue from solar rooftop projects and solar manufacturing business comprised nearly 17% of the total revenue for Tata Power in Q1 FY 22.
2. EV Charging Stations by Tata Power
The companies delving into Electric Vehicles shouldn’t be just seen as an automotive companies. Nobody views Tesla as purely an automotive company. Analysts and investors actually think of it as an energy-cum-technology company. Tesla
While Tata Motors may be considered the automotive and technology division for the Tata and Jaguar Landrover electric cars, Tata Power is the energy segment.
As of October 2021, Tata Power has approximately 1000 EV charging stations all over India. The company aims to establish 10,000 EV charging stations by 2025.
2.1. Is 10,000 EV Charging Stations a Hype?
Tata Power may have made this claim but we, as investors, need to analyze the truth about the claims.
Tata Power has recently collaborated with Macrotech Developers, Central Railways Mumbai and HPCL to set up charging stations in several cities.
Hindustan Petroleum Corporation Limited (HPCL) runs 15, 287 petrol pumps in India. Tata Power has joined hands with HPCL to set up state-of-the-art EV charging stations at its retail outlets.
So, going by this number alone, the target for 10,000 Tata Power EV charging stations in India seems easily achievable. In my opinion, 10,000 EV stations is a very conservative number.
2.2. Key Competitors of Tata Power in EV Charging Segment
As of October 2021, there are over 1800 EV charging stations in India. So, Tata Power has over 50% of the share of the EV charging sector in India.
Its key competition is from the Okaya Power Group.
Okaya Power Group, a Japanese Company, has recently bagged a deal from Rajasthan Electronics and Instruments Ltd. (REIL) to set up 4,244 EV charging stations in India.
In my opinion, the competition from Okaya Group is very healthy for Tata Power as that would further incentivize the EV sector in India.
One of the major reasons for Indians not buying EV cars is the lack of enough EV charging stations. Till now Tata Power was the major private player to execute EV charging stations in India. With Okaya in the picture and with the rising fuel prices, the EV industry is likely to boom faster than ever.
2.3. How Profitable Is the EV Charging Business for Tata Power?
3. Traditional Power Generation and Distribution Business
Tata Power has delved into the EV charging station and solar power business only in the last 5-6 years. However, before that, it was a conventional energy generator and distributor company, just like NTPC.
4. Tata Power Balance Sheet
4.1. Debt Obligation
Tata Power has a loss-making Thermal Power plant in Mundra, Gujarat. The Mundra plant adds to debt of ₹8,000 crores to its balance sheet. However, it has been working hard to reduce this loss by efficient coal sourcing from Australia. The net loss for the Mundra plant is expected to come down to ₹4,000 crores.
The slide below shows the debt profit for Tata Power. The Debt to Equity ratio is 2.24 and the Interest Coverage Ratio is 1.72 which are NOT healthy.
Nearly 46% of the total debt of Tata Power is bad debt (See the highlighted ₹22,223 crore debt of Tata Power). The rest of the remaining debt are just borrowings for working capital.
The Mundra Thermal Plant debt alone accounts for ₹8,000 crores debt which is 17% of the total debt the company owes. The Mundra Thermal Plant debt is 40% of the bad debt.
If the company can manage to make the Mundra plant profitable or somehow find a way to make the balance sheet a bit cleaner, that would further support the Bull case scenario for Tata Power.