Tata Power Slumps Despite an 11.4% Jump in Net Profits

Tata Power Company Limited is India’s largest integrated power company, The company reported its earnings for Q4 FY 2023-24 yesterday with a rise of 11.4% in the net profits, despite this jump in net profits the stock is currently trading down by -2.65% from its previous day closing price as the streets are thinking that the risk to reward ratio at current market price seems unfavourable for the power stock.

Q4 performance of Tata Power

Tata Power reported a revenue of Rs.15,846.58 crores against Rs.12,453.76 crores in Q4 FY 2022-23, a rise of 27.24%, The net profit for Q4 FY 2023-24 has seen a jump of 11.4% to Rs.1045.59 crores from Rs.938.81 crores in Q4 FY 2022-23.

EBITDA for the company increased by 20.96% to Rs.2,331.83 crore compared to Rs.1,927.71 crore in the same quarter last year. However, the margin narrowed by 76 basis points to 14.71% from 15.47% in the corresponding quarter of the previous year. The company has also recommended a dividend of Rs.2 per share.

Management after results

Praveer Sinha, CEO and MD of Tata Power has said, “ Our clean energy portfolio will touch 15 GW by FY27 and we are committed to supplying round-the-clock renewable energy to our consumers with a mix of solar, wind, and Pumped Hydro Storage Projects in our portfolio.” With power demand continuously growing in India, It has continued to surge and witnessed an eight per cent growth in FY24 on an annual basis. Tata Power management believes this trend to continue at least for the next 2-to 3 years. The coal prices remained stable for the last 6-8 months and are likely to remain stable going forward.

Fundamentals of Tata Power

Tata Power’s revenue is seeing a CAGR growth of 23% from the past 3 years and on the bottom line basis the company is seeing a CAGR of around 45%, Over the last 3 years the company has maintained a Return on Equity of about 11.3%. The stock currently trades at a Price to Earnings multiple of 40.87 and 4.16 times its book value, The stock is up by more than 100% over the past year and currently trades at Rs.423.70  a piece,

Shares fall after results

The shares of Tata Power Ltd. fell by as much as 3.5% in today’s trading session as the results could not impress the analysts. Analysts have also said that there was weak profitability from the company on the renewable energy front, shares of Tata Power have gained over 100% in the past year, more than doubling its investor’s wealth.

Conclusion: The numbers reported by the company have been below the expectations of the analysts as the share prices have gained over 100% over the past year, The management has confidence in the power demand in the country. But the street expects that the risk-to-reward ratio for the stock after results at the current market price seems unfavourable, The stock currently trades at Rs.423.70 a piece down by 2.65% from its previous day’s closing price.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.