Tata Power Fundamental Analysis: Illuminating Opportunities

Tata Power Fundamental Analysis | Key Insights| Harnessing Growth Potential

Tata Power- About the Company

The company specializes in supplying and transmitting power, and it operates across several segments: Generation, Renewables, Transmission and Distribution, and Others. Under the Generation segment, the company produces power through hydroelectric and thermal sources. It owns and operates power plants either directly or through lease arrangements, offering ancillary services as well. The Renewables segment focuses on power generation from renewable energy sources. The Transmission and Distribution segment manages the company’s transmission and distribution network. It involves selling power to retail customers via the distribution network and providing ancillary services

Future of Power Sector in India

As per IBEF Report, India has huge ambitions in energy transition and plans to have 500 GW of non-fossil based electricity installed capacity by 2030, so that non-fossil cleaner fuel comprises of 50% of the installed capacity mix by 2030. The Government of India’s focus on attaining ‘Power for all’ has accelerated capacity addition in the country. As of January 31, 2023, India’s installed renewable energy capacity including hydro energy stood at 168.4 GW, representing 40.9% of the overall installed power capacity.

India’s decision to permit 100% Foreign Direct Investment in the power sector has resulted in a notable surge in FDI inflows. From April to December 2022, the power sector witnessed a substantial total FDI inflow of US$ 16.57 billion.

The Ministry of Power has announced that by 2026, 81 thermal power plants will be replaced with renewable energy generation in response to irregularities in the supply of coal from time to time. Keeping in mind that India is the third-largest producer and consumer of electricity worldwide, coupled with the growing population, technology, industries and GDP, the future of Power sector in India is no doubt very rich with TATA Power, as one of the fastest-growing power companies.

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Tata Power Fundamental Analysis- Essentials and Financials

In the past fiscal year, the Company achieved an impressive operating profit of 7,728 crores. Furthermore, there was a positive growth in various financial indicators. Net sales increased to Rs. 12,453.76 crore in March 2023, marking a 4.13% rise from Rs. 11,959.96 crore in March 2022. Net profit also showed significant growth, reaching Rs. 777.73 crore in March 2023, a 54.58% increase compared to Rs. 503.11 crore in March 2022. Additionally, EBITDA stood at Rs. 2,799.25 crore in March 2023, showing a 31.54% growth from Rs. 2,127.99 crore in March 2022.

Tata Power’s trailing twelve months EPS amounted to 10.44 Rs per share, reflecting a substantial YoY increase of +91.58%. Furthermore, the company’s TTM PE ratio stands at 21.76, which is lower than the sector’s PE ratio of 43.3. This combination of a low PE ratio and a growing EPS indicates that the Company’s net profit is gradually rising.

The company is maintaining healthy profitability ratios as ROE stands at 12.6% and ROCE stands at 12.4%. Debt to Equity Ratio of 1.7 is higher than 1. This implies that company assets are financed through debt. Dividend Yield stands at 0.87%, indicating the percentage of dividends relative to the company’s stock price.

In terms of shareholding patterns, the promoters’ pledge remained unchanged at 1.40% of their holdings in the March 2023 quarter. The promoters’ overall holding also remained unchanged at 46.86% in the same quarter. However, FII/FPI decreased their holdings slightly from 9.63% to 9.45% in the March 2023 quarter. Mutual funds also reduced their holdings from 4.04% to 3.11% during the same period. Additionally, institutional investors decreased their holdings from 24.28% to 23.94% in the March 2023 quarter.

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Profit & Loss | Income Statements

Analyzing the past 5 years’ Profit and Loss performance of TATA Power, specifically from March 2018 to March 2023, we observe a significant increase in revenues from sales. The company’s sales revenue has grown from 26,840 crores to 55,109 crores, indicating a compounded sales growth of 15% over the 5-year period. Furthermore, the growth rate in the last 3 years stands at 24%, while in the trailing 12 months, it reaches 29%. These figures suggest a consistent upward trend in the company’s sales revenue, demonstrating its ability to generate increasing revenue from its operations.

Moreover, TATA Power has effectively managed its expenses, keeping them below its revenues, which indicates profitability for the company. Although the net profit has experienced some fluctuations over the 5-year period, it has remained positive and displayed growth in the last 3 years. The compounded profit growth over 5 years stands at 45%, while the growth rate for the last 3 years reaches an impressive 133%. In the trailing twelve months, the profit growth stands at 51%. These figures highlight the company’s ability to generate increasing profits, particularly in recent years, showcasing its positive financial performance.

EPS and Dividend payout

Earnings per share is indeed a key indicator of a company’s earnings growth, and a positive and growing EPS is generally considered favorable when analyzing a company’s fundamentals. In the case of Tata Power Fundamental Analysis, the EPS of the company has experienced fluctuations over the past 5 years, from March 2018 to March 2023. However, it has shown a significant increase from Rs 3.46 in March 2020 to Rs 10.44 in March 2023, representing a growth of approximately 201.73%.

On the other hand, the dividend payout has seen a decline in recent times. The dividend payout ratio stood at 19% in the trailing twelve months , marking a decrease from 32% in March 2022. The decline in the dividend payout ratio suggests that the company has allocated a smaller portion of its earnings towards dividends.

Overall, the Profit and Loss analysis of TATA Power for the past 5 years reflects consistent revenue growth and positive net profit, indicating the company’s ability to effectively manage its operations and generate profits.

Cash Flows Statements

The table given below shows that over the course of five years, from March 2018 to March 2023, TATA Power’s cash flow has fluctuated. Particularly, the company’s capacity to earn cash from its main business has exhibited some variation in the cash flows from operational activities. While there may be a variety of causes for these variations, this particular factor needs further emphasis and attention.

While the cash flow from operational activities has improved over the previous fiscal year, it is important to note that it was 6,693 crores in March 2022 and 7,159 crores in March 2023. This amounts to a roughly 6.96% rise. This development shows a better capacity for the business’ core operations to earn cash.

Additionally, for the past five years, the net cash flow has shown negative statistics. It was -741 crores in the previous fiscal year, but as of March 2023, it will be 1,243 crores. This denotes a change in cash flow from negative to positive, denoting a successful outcome.

In conclusion, TATA Power has had a fluctuating and poor cash flow during the previous five years. The company’s capacity to produce cash from its core businesses has improved, as seen by an improvement in the cash flow from operational activities. In addition, the net cash flow in the most recent fiscal year changed from negative to positive, demonstrating success in cash flow management. These changes show TATA Power’s attempts to improve its capacity for cash creation and management.

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Comparison Between Income Statements And Cash Flows Statements.

During Tata Power’s Fundamental Analysis, an important observation can be made when examining both the Income Statement and the Cash Flow Statement. In the March quarter of FY 2023, the company’s cash flows from operational activities amounted to 7,159 crores, while the Net Income or Net Profit for the same period stood at a higher figure of 3,810 crores. In an ideal scenario, it is generally preferred to have cash flows from operational activities exceeding the Net Income. This indicates a strong and healthy growth outlook for the company.

When cash flows from operational activities exceed the Net Income, it signifies that the company is generating significant cash through its core business operations. This is crucial for the company’s financial stability and its ability to invest in future growth opportunities. Higher cash flows from operations indicate that the company has a solid foundation and is effectively generating cash from its primary operations, which can support its growth and expansion plans.

Tata Power Fundamental Analysis: Analyzing Key Performance Indicators

Profitability Ratios

The company has constantly had an annual return on equity of 21.14% during the last three years. This shows that the business has been able to profitably use the capital invested by its shareholders.

Additionally, throughout the same three years, the firm showed outstanding profit increase of 80.21%. This represents the company’s capacity to boost profitability and increase net income.

The company has seen excellent sales growth of 31.89% over the last three years in addition to profit growth. This displays the business’ capacity to increase sales and strengthen its top line.

Key Metrics

Over the past 5 years, the Company has consistently maintained an effective average operating margin of 23.40%. This indicates the company’s ability to efficiently manage its costs and generate profits from its core operations.

Additionally, the company has demonstrated an efficient Cash Conversion Cycle of 79.08 days. The CCC represents the time it takes for the company to convert its investments in inventory and other resources into cash flows from sales. A lower CCC indicates better management of working capital and a more efficient cash flow cycle.

Moreover, the good cash flow management is evident through the CFO/PAT ratio of 1.02, highlighting the company’s ability to generate positive cash flow from its core operations.

Highlighting Some Important Aspects | Limitations of TATA Power

The stock is currently trading at a price that is 2.53 times its book value. This indicates that the market value of the stock is higher than its accounting value, suggesting a potential premium placed by investors on the company’s assets and earnings potential.

However, the company has shown a relatively low return on equity of 9.47% over the last 3 years. ROE measures the profitability of a company in relation to its shareholders’ equity. A lower ROE suggests that the company is generating lower profits relative to its shareholder investment.

Furthermore, the company’s earnings include an additional income of Rs. 5,540 Cr. This other income contributes to the company’s overall earnings and may come from sources such as investments, interest, or non-operating activities. It is important to consider this component when evaluating the company’s profitability and financial performance.

A Closer Look At Company’s Annual Income Statement

In our next step of Tata Power Fundamental Analysis, let’s learn the annual performance of the stock. Annual Revenue rose 29.3%, in the last year to Rs 56,547.1 Crores. Annual Net Profit rose 91.6% in the last year to Rs 3,336.4 Crores. Stock Price rose 5.3% and outperformed its sector by 0.6% in the past year.Interest Coverage Ratio is 2.1, higher than 1.5. This means that it is able to meet its interest payments comfortably with its earnings (EBIT).

TATA POWER earnings for the last quarter are 2.40 INR whereas the estimation was 3.19 INR which accounts for -24.76% surprise. Company revenue for the same period amounts to 127.46B INR despite the estimated figure of 139.22B INR.

Estimated earnings for the next quarter are 3.13 INR, and revenue is expected to reach 115.27B INR.

BOTTOM LINE

The basic examination of Tata Power Fundamental Analysis concludes with numerous important findings. With a compounded sales increase of 15% over the last 5 years, the firm has shown a steady and healthy development in revenues, demonstrating a steady upward trajectory in its sales performance. Tata Power has also continued to be profitable, with solid profit growth of 80.21% over the last three years. The company’s positive cash flows from operational activities, which surpassed net income, demonstrate its capacity to produce cash from its main business operations.

However, It is important to keep in mind that the firm has seen changes in several financial indicators, such EPS and ROE, which call for closer observation. Overall, Tata Power has strong development potential, robust revenue performance, and efficient cash flow management, all of which point to a positive future for the company.

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Disclaimer

The blog is meant for informational purposes and serves the general analysis of the stocks. Contents provided here are based on careful research and analysis utilizing the fundamental and technical indicators over a period of time. The post does not consist any direct recommendation about Investing or trading in the securities market. Thorough research and careful consideration are necessary for individuals to fulfill their personal responsibility in making financial decisions. Seeking professional advice before making any financial decisions is always advisable.