Torrent Power Analysis: Power and energy company Torrent Power Limited (TPL) faced a challenging December quarter marked by stagnant revenue and a significant drop in profit after tax (PAT), analysts said.
Despite witnessing operational improvements, the company struggled with rising operating expenses, leading to a 47 percent year-on-year decline in profit before tax (PBT).
In the December quarter (Q3FY24), the company reported flat revenue of Rs 6,366 crore, reflecting a marginal decline of 1 per cent compared to the previous year.
The decline in PBT was mainly due to lower gains in gas trading and power trading sales, which were in stark contrast to the corresponding period's figures, brokerage firm Geojit said in a note.
Despite notable achievements such as increased availability of wind capacity and improved return on equity (ROE) in various segments including renewables and distribution, Torrent Power faced challenges due to rising depreciation and financing costs. Consequently, the PAT plunged 46 percent year-on-year to Rs. 374 crores.
The operational front showed some positive trends, including a 5 per cent increase in the distribution segment and improved plant load factors (PLFs) for thermal and renewable capacities.
However, the distribution sector saw losses, particularly in Ahmedabad, where losses increased by 351 basis points year-on-year.
The company anticipates increased energy demand in the coming summer months, which presents opportunities in the commercial market, the brokerage firm noted.
To capitalize on this, the company secured additional cargo berths to meet demand in the fourth quarter of financial year 2024 (Q4FY24) and the first quarter of financial year 2025 (Q1FY25). Additionally, weakening natural gas prices offer potential cost reductions for thermal generation.
Despite these strategic moves, concerns are emerging over the company's valuation, execution risks on renewable capacity expansions, and declining prospects in LNG trading.
As a result, analysts at Geojit recommend caution and maintain a sell rating on the stock at the target price of Rs. 1,038.
While Torrent Power Ltd. navigates operational hurdles and seeks to capitalize on market opportunities, its profitability remains under pressure amid broader industry challenges and valuation uncertainties.
At 9:18 am, shares of Torrent Power were trading up 1.08 per cent at Rs 1,138.05 per share.
