An integrated power utility, engaged in generation, transmission and distribution of power, recently reported a 18 per cent miss on Q4 profit after tax, as distribution business undershot expectations on weaker demand and higher T&D losses. If one were to go by Ambit Capital, its shares have potential to fall 46 per cent over the prevailing price levels in the next 12 months. This stock is Torrent Power Ltd.
Shares of Torrent Power are up 50 per cent in 2024 so far. It has soared 163 per cent in the past one year and over 200 per cent in the past three years.
Ambit Capital said Torrent Power missed its profit estimates by 28 per cent, consensus estimates by 18 per cent. It noted that Torrent Power now has 3GW RE pipeline, with projects won at healthy high-teen equity IRR, estimated at 16-17 per cent. Going ahead, it expects renewable energy (RE) to provide earnings momentum, though execution would be a challenge for even a management team such as Torrent's, it said.
"We continue to model Rs 600 crore/800 crore Ebitda from merchant power for FY25/FY26, assuming 30 per cent/50 per cent PLF and Rs 2/Rs 1.5 spread for FY25/FY26, baking In somewhat similar economics under Section 11 too. We raise FY25/FY26 Ebitda by 1 per cent/7 per cent on greater earnings momentum in RE, offset partly by lower-than-earlier-expected growth in DISCOM," it said.
Ambit Capital has kept its FY28/beyond assumptions unchanged.
It foresees 13 per cent Ebitda and 8 per cent PAT CAGR until FY32. The brokerage revised its target price on Torrent Power to Rs 750 from Rs 720, implying 2 times FY26E book valu.
"In all SELL 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 per cent while its PAT missed our/consensus estimates by 28 per cent/18 per cen. Transmission & distribution business reported 8 per cent YoY drop in Ebitda in 4Q - a combination of muted demand growth in franchise distribution (Bhiwandi, Agra), and high T&D loss in Ahmedabad (distribution licenses)," it said.
Ambit Capital said Torrent Power had benefit of Rs 900 crore Ebitda from LNG trading/sale in FY23, while merchant power sales of Rs 400 crore aided FY24 numbers. After netting each other, there was Rs 500 crore lower Ebitda in FY24 from such non- recurring sales.