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Target: ₹342
CMP: ₹246.70
Tata Power Renewable Energy Ltd (TPREL), fully-owned subsidiary of Tata Power, concluded the equity transaction with Blackrock (along with the UAE-based co-investor Mubadala Investment Company), implying valuation of ₹109/share. The pre-money equity valuation of ₹34,000 crore and gross debt of ₹16,000 crore will make for EV of ₹50,000 crore.
Blackrock (along with the co-investor) will invest ₹4,000 crore. The base equity infusion will dilute 10.53 per cent stake. However, the range of final shareholding will be 9.76-11.43 per cent.
The past capital allocation was driven by 39 per cent in coal/CGPL, 32 per cent in regulated business and 29 per cent in renewables. The path ahead will have 49 per cent of regulated business (with 31 per cent coming from T&D) and 32 per cent in renewables.
Based on the current capital allocation, we value Tata Power at ₹342/share; where investments in Coastal Gujarat Power Ltd (CGPL) at ₹50/share, regulated business is valued at ₹67/share, consolidated renewable energy (RE) at Rs 109/share and coal arm at ₹116/share.
Risks: Sharp decline in coal prices impacting subs and slower resolution in CGPL.
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