Torrent Power - On recovery path... - ICICI Securities

Major factors impacting Torrent Power's (TPW) Q1FY21 performance were: favourable APTEL orders, lower merchant spreads, demand reduction at distribution franchises (DFs), AT&C loss increase at Ahmedabad and Bhiwandi, and decline in interest and depreciation expenses. On consolidated basis, adjusted profit for the quarter was at Rs1bn, down 63% YoY (I-Sec: Rs1.2bn) while reported consolidated PAT came in at Rs3.7bn, up 35.2% YoY. Consolidated revenues stood 19.5% YoY lower at Rs30.1bn although EBITDA for the quarter was at Rs9.7bn, up 16.3% YoY. DGEN PLF improved to 28.9% (vs 10.2% in Q1FY20), but overall conventional generation fell 12% YoY due to AMGEN (down 83% YoY). Debt repayment was aided by 11.1% YoY reduction in interest rates. We reduce our estimates to factor-in lower demand in Bhiwandi area due to sporadic lockdowns. Although we expect good recovery in FY23E, the recent run-up in stock price leads us to downgrade our rating to REDUCE (from Hold) with a revised target price of Rs313 (earlier: Rs309); increase in target price is due to part-materialisation of regulatory assets which was not factored-in earlier.

- Wind generation higher, conventional lower: Overall generation (including renewables) fell 7.5% YoY mainly due to 12% YoY decline in conventional generation, despite higher generation at DGEN. The renewable segment's must-run status and the recently commissioned 176MW capacity aided higher wind generation (up 16% YoY) despite tepid demand and low wind speeds. Solar generation was flat YoY. Although merchant sales were higher at 921MU in Q1FY21 vs 783MU in Q1FY20, their net contribution was much lower at Rs0.38/kWh in Q1FY21 vs Rs0.69/kWh in Q1FY20.

- DF businesses suffer: Reduction in demand from commercial and industrial customer categories and increase in T&D losses impacted the DF businesses. Similarly, demand was low at the licensed distribution businesses as well, but their regulated business model minimised the impact. Yet, due to higher T&D losses in Ahmedabad, the incentive income reduced. EBITDA for DF businesses for Q1FY21 came in at Rs390mn vs Rs2.17bn in Q1FY20 (Shil, Mumbra and Kalva DF also operated during the quarter, but contributed negatively). Collection efficiency for Bhiwandi/Agra during Q1FY21 was at 85%/77%, but management expects it to recover to 100%/98% in the coming quarters. For FY21, management has guided for loss levels at 16%/12.5% for Bhiwandi/Agra.

- One-time charges during the quarter: 1) Favourable APTEL order amounting to Rs3.44bn (pre-tax) comprising a basic claim of Rs2.83bn and a related tax allowance of Rs610mn; 2) Rs610mn rebate on fixed charges to customers per guidelines issued by the GERC; and 3) Rs120mn donation to PM CARES fund.

- Debt to return to Mar'20 levels by Sep'20: TPW's gross debt increased by Rs4bn from FY20-end to Rs93bn at Q1FY21-end. Company had opted for moratorium during Mar-May'20 period, but reversed it in Jun'20, paying dues of the moratorium period and also prepaying Rs3bn. Company expects to bring debt back to Mar'20 levels by Sep'20.

- Valuation: We downgrade TPW to REDUCE (from Hold) due to the recent run-up in stock price, but increase our target price to Rs313 due to part-materialisation of regulatory assets which was not factored-in earlier.

Shares of TORRENT POWER LTD. was last trading in BSE at Rs.339.5 as compared to the previous close of Rs. 339.05. The total number of shares traded during the day was 47930 in over 1633 trades.

The stock hit an intraday high of Rs. 344.35 and intraday low of 338.45. The net turnover during the day was Rs. 16315170.

Source : Equity Bulls

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