Tata Power Shares Downgrade Despite $526-Million Renewable Energy Deal

Tata Power has declared that a committee headed by US-based BlackRock, which includes Mubadala, will invest 4,000 crore in its unit, Tata Power Renewable Energy Ltd, for a share of over 10%. In early trading on Monday, Tata Power shares fell more than 4% to 262 rupees a share on the BSE.

Tata Power stated in a statement that the first phase of capital infusion will be finished by June 2022, and the remaining funds will be put by the end of the current fiscal year.

Brokerage Edelweiss mentioned in a note –

“Tata Power has announced consolidation of all green businesses (RE) under TPREL, and binding agreement with a BlackRock-led consortium.

The stake sale could be 9.76–11.43% contingent on FY23 results, and implies a pre-money equity value of ₹310–370 bn (mid-point INR 340 bn) for TPREL.”

The stock surged 20% in just seven trading days prior to the deal’s completion.

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Consequently, the brokerage predicts the stock to level down in the immediate term, even though the agreement is structurally good, as the events are playing out nicely – Mundra resolution plus profitability upgrade given recent coal rates are the near-term signals.

The note also stated –

“The deal value is slightly below our expectations. Even so, it is a very positive development for Tata Power as it funds RE capex for the next three years, and the new structure optimizes capital deployment and future fund-raising. Overall, the deal would fast-track RE growth.”

The fundraising is expected to provide adequate expansion capital for the next 4–5GW of renewable energy capacity increases and 4GW of modern manufacturing facilities, according to the company.

The note from Edelweiss disclosed –

“Because of the integrated business model, this will have a compounding impact on earnings growth, potentially boosting TPREL’s operational profit 2.5–3 times over the upcoming three–four years. TPREL’s new structure would also improve cash upstreaming, leverage management, and fund-raising, among other things.”