An integrated electric power company, engaged in power generation, transmission and distribution, recently reported an 18 percent loss in its fourth-quarter after-tax earnings as the distribution business failed to meet expectations due to a weaker demand and higher T&D losses. If we were to go with Ambit Capital, its shares have the potential to fall 46 percent from prevailing price levels over the next 12 months. This action is Torrent Power Ltd.
Torrent Power shares are up 50 percent in 2024 so far. It has soared 163 percent in the last year and more than 200 percent in the last three years.
Ambit Capital said Torrent Power missed its earnings estimates by 28 percent, consensus estimates by 18 percent. He noted that Torrent Power now has a 3GW renewable energy portfolio, with projects won at a healthy teen capital IRR, estimated at 16-17 percent. Going forward, he expects renewable energy (RE) to provide a boost to profits, although execution would be a challenge even for a management team like Torrent's, he said.
"We continue to model an Ebitda of Rs 600 crore/Rs 800 crore of trading power for FY25/26, assuming a PLF of 30 per cent/50 per cent and a spread of Rs 2/Rs 1.5 for the FY25/26, also baking in somewhat similar economics under Section 11. โWe increased FY25/26 Ebitda by 1 per cent/7 per cent on the back of stronger earnings momentum in RE, offset in due to lower-than-expected growth at DISCOM," he said.
Ambit Capital has kept its assumptions unchanged for FY28/beyond.
It forecasts 13 per cent Ebitda and 8 per cent PAT CAGR through FY32. The brokerage revised its target price of Torrent Power to Rs 750 from Rs 720, implying 2x FY26E book value.
"In all SALES coverage, prefer NTPC > Power Grid > Torrent Power > Tata Power. Torrent's 4QFY24 Earnings Missed Expectations by a Wide Margin - 4QFY24 Ebitda of Rs 1,220 Crore Missed Our Estimates by 12 percent, while its PAT missed our consensus estimates by 28 percent/18 percent cen.
Ambit Capital said Torrent Power benefited from Ebitda of Rs 900 crore from LNG trading/sale in FY23, while trading power sales of Rs 400 crore helped the FY24 numbers. After netting each other, there was Rs 500 crore lower Ebitda in FY24 due to such non-recurring sales.
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