Tata Power shares fall 3.5% on weak Q4 results, brokerages maintain 'sell' calls

Tata Power shares fell over three percent in early trade on May 9, after the Tata group firm posted a consolidated net profit of Rs 1,045.59 crore for the fourth quarter.

The firm's net profit grew 11.37 percent from the year-ago period driven by strong performance of its core thermal coal generation business.

However, the thermal generation (including coal) cluster saw a sharp 58 percent year-on-year drop in PAT, primarily on account of losses of Rs 43 crore, said Kotak Institutional Equities.

At 10.05 am, Tata Power shares were quoting at Rs 425.3 apiece on the NSE, down by 2.4 percent from the previous session's close.

Kotak also said that from this financial year, Tata Power’s earnings were premised on the stability in prices of imported coal and their contribution to earnings, the growth in the renewable segment and sustainability of Sec 11 orders for Mundra ultra mega power plan that have currently been extended to October 2024.

Power demand in India continues to surge and witnessed an eight percent  growth in FY24 on an annual basis. Tata Power management believes this trend to continue at least for the next 2-3 years. The coal prices remained stable for last 6-8 months and are likely to remain stable going forward.

This failed to impress CLSA and Kotak, both of whom have a sell rating on the power major.

CLSA said that the weak Q4 was led by weak profitability on the renewable energy front.

The quality of the firm's results remains challenging, added the brokerage, since a large part was supported by dividends of Rs 700 crore from ITPC. CLSA has a target price of Rs 297 per share, indicating a downside of around 32 percent.

Kotak's price target of Rs 265 implied that the fair value of the stock was around 40 percent lower from current levels.

Over the past year, Tata Power shares gained over 100 percent, more than doubling investors' wealth. In comparison, the frontline Nifty 50 index gained around 22 percent during the same time period.