Tata Power has been a largely ignored stock for the last few years. Primarily because the entire Power sector was largely ignored by most Investors, reasons for which have been discussed many a times in the past on various forums. But there is something happening over the recent few quarters that Investors are ignoring again, but they should definitely take note of.
Tata Power's consolidated quarterly numbers are showing some handsome signals of improvement in the company's business operations over the last 2-3 quarters. On one hand, Tata Power's Consolidated Quarterly Total Income has posted double-digit Y-o-Y growth for 2 consecutive quarters this fiscal. This has helped the company to post highest ever Quarterly as well as T-T-M Total Income numbers during the Sept'15 quarter. On the other hand, Tata Power has managed to post 4 consecutive quarters of smart improvement in EBITDA margins. Tata Power's T-T-M EBITDA margin at the end of Sept'14 was just 18.50%, which has seen a remarkable improvement to 23.95% by Sept'15.
The huge 400+ bps improvement in EBITDA margins, accompanied by small bit of increase in T-T-M Total Income, has lead to a smart 39% increase in Tata Power's T-T-M EBITDA over the last 1 year. Even as the EBITDA has seen a big jump over the last 2-3 quarters, Tata Power has managed to keep a lid on it's Interest Costs, which has helped the company an over 50% jump in it's T-T-M Cash Profits. This big jump in Cash Profits has enabled the company to return to Net Profits over the last few quarters, despite higher Provisioning. On a T-T-M basis, Tata Power has posted a Net Profit of Rs.845 crores by Sept'15, which translates into an EPS of little over Rs.3/-. Despite all this improvement in operational numbers, Tata Power has seen it's Market Cap slide from over Rs.23,000 crores at the end of Sept'14 to under Rs.17,000 crores by Sept'15. At the current share price of around Rs.62/-, Tata Power trades at less than 6 times it's T-T-M Cash Profit, which itself is improving rapidly. Even at the current price, I think this is attractive valuations based on T-T-M numbers. And the valuations will look even more attractive if we consider the potential improvement in Cash Profit & Net Profit numbers over the next 2-3 quarters.
I think this is an excellent opportunity for long term investors to invest in this sector and Tata Power, alongwith couple of other large Private sector Power Producers like Reliance Power & Adani Power, do make a lot of sense for investors to increase their exposure to these stocks. But the investment horizon should purely be long term.
Tata Power's consolidated quarterly numbers are showing some handsome signals of improvement in the company's business operations over the last 2-3 quarters. On one hand, Tata Power's Consolidated Quarterly Total Income has posted double-digit Y-o-Y growth for 2 consecutive quarters this fiscal. This has helped the company to post highest ever Quarterly as well as T-T-M Total Income numbers during the Sept'15 quarter. On the other hand, Tata Power has managed to post 4 consecutive quarters of smart improvement in EBITDA margins. Tata Power's T-T-M EBITDA margin at the end of Sept'14 was just 18.50%, which has seen a remarkable improvement to 23.95% by Sept'15.
The huge 400+ bps improvement in EBITDA margins, accompanied by small bit of increase in T-T-M Total Income, has lead to a smart 39% increase in Tata Power's T-T-M EBITDA over the last 1 year. Even as the EBITDA has seen a big jump over the last 2-3 quarters, Tata Power has managed to keep a lid on it's Interest Costs, which has helped the company an over 50% jump in it's T-T-M Cash Profits. This big jump in Cash Profits has enabled the company to return to Net Profits over the last few quarters, despite higher Provisioning. On a T-T-M basis, Tata Power has posted a Net Profit of Rs.845 crores by Sept'15, which translates into an EPS of little over Rs.3/-. Despite all this improvement in operational numbers, Tata Power has seen it's Market Cap slide from over Rs.23,000 crores at the end of Sept'14 to under Rs.17,000 crores by Sept'15. At the current share price of around Rs.62/-, Tata Power trades at less than 6 times it's T-T-M Cash Profit, which itself is improving rapidly. Even at the current price, I think this is attractive valuations based on T-T-M numbers. And the valuations will look even more attractive if we consider the potential improvement in Cash Profit & Net Profit numbers over the next 2-3 quarters.
I think this is an excellent opportunity for long term investors to invest in this sector and Tata Power, alongwith couple of other large Private sector Power Producers like Reliance Power & Adani Power, do make a lot of sense for investors to increase their exposure to these stocks. But the investment horizon should purely be long term.
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