Tata Power shares: Stellar earnings could not prevent stock falling 21% in a year; here's why

Shares of Tata Power Ltd have slipped 21% in the last one year despite the Tata Group firm logging stellar earnings during the period. The 30-stock Sensex is down 0.62% during the same period. Rising interest rates, high debt burden and overall bearish market sentiment have pushed the stock in the red zone, say analysts.

Tata Power’s debt has increased from Rs 46,708 crore for the fiscal ended March 2021 to Rs 51,195 crore in the fiscal ended March 2022. As of September 2022, debt of Tata Power rose to Rs 53,251 crore.

Rising interest rates too have made cost of servicing debt higher for the Tata Group company. The Reserve Bank of India (RBI) in its February 2023 policy meeting raised the repo rate by 25 bps to 6.5%. This was the central bank's sixth hike in a row, raising the rate by 2.5% since May 2022.

On the other hand, the company has logged stellar earnings show including the December quarter of the last fiscal.

Tata Power logged a 91% rise in net profit to Rs 1052.14 crore due to rising power demand and the festive season. Consolidated net profit stood at Rs 551.89 crore in the quarter ended December 2022. Revenue rose 29.5% to Rs 14,129 crore in Q3 from Rs 10,913 crore in the December 2021 quarter. EBITDA climbed 43% to Rs 2334 crore in the December quarter against Rs 1634 crore in the December 2021 quarter.

In the second quarter of the previous fiscal, Tata Power logged a consolidated profit of Rs 935 crore, logging year-on-year growth of 85 per cent over a consolidated profit of Rs 506 crore last year. Revenue from operations climbed 49 percent to Rs 14,031 crore from the revenues of Rs 9,810 crore logged during the same period last year.

In the first quarter of the last fiscal, Tata Power logged a 103 per cent year-on-year (YoY) rise in consolidated net profit at Rs 795 crore against Rs 391 crore in the year-ago period.

Consolidated revenue from operations rose 43 per cent to Rs 14,495 crore in the quarter under review as against Rs 10,132 crore in the same quarter last fiscal.

However, the financial performance of the firm has not helped the stock during the period.

In the current trading session, Tata Power stock climbed 3.05% intraday to Rs 196 against the previous close of Rs 190.20 on BSE. Stock of Tata Power has lost 6.5 per cent in 2023. Total 3.97 lakh shares of the firm changed hands amounting to a turnover of Rs 7.69 crore on BSE. Market cap of the firm climbed to Rs 61,733 crore in the afternoon session today.

In terms of technicals, the relative strength index (RSI) of the stock stands at 36.1, signaling the stock is neither oversold nor overbought. Tata Power has a one-year beta of 1.2, indicating high volatility during the period. Tata Power shares are trading higher than the 5 day moving averages but lower than 20 day, 50 day, 100 day and 200 day moving averages.

On the outlook of the stock, Abhijeet from Tips2trades said, "After two excellent years of phenomenal investor returns, Tata Power stock price has been in a corrective mode since the past 1 year due to an overall bearish market sentiment coupled with rising interest costs due to its high debt burden. Technically, Tata Power has strong resistance at Rs 194. A daily close above this resistance could be very bullish and lead to targets of Rs 202-216 in the near term. Support will be at Rs 185.5."

Ravi Singh, Vice President and Head of Research, Share India said, "The coal segment of Tata Power underperformed and increasing debt levels in the face of rising inflation also raised concerns. Due to the outstanding dues, Tata Power's financial position, particularly that of its subsidiary, Coastal Power Gujarat, has suffered. Tata Power also failed to excite investors on the EBITDA front. However, Tata Power is one of the lead players in the field of renewable energy and may show recovery as market improves. Investors may enter the stock at current levels for a target of Rs 210 from near-term perspective."

JM Financial has a hold call on Tata Power for a target of Rs 220. "Tata Power is focusing its resources on transition to cleaner fuels and aiming to be a market leader in all sub-segments with support from stable cash flows from its regulated generation and distribution businesses," said the brokerage.

Tata Power is one of India's largest integrated power companies and, together with its subsidiaries and jointly controlled entities, has an installed/managed capacity of 14,101 MW. The company has its presence across the entire power value chain—generation of renewable as well as conventional power including hydro and thermal energy, transmission & distribution and trading.

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