“Tata Power shares may stabilize in the short term,” says Edelweiss; Stay positive on the stock

Tata Power has announced that a consortium led by US consortium BlackRock, including Mubadala, will invest 4,000 crore in its subsidiary, Tata Power Renewable Energy Ltd, for a stake of more than 10%. Shares of Tata Power plunged more than 4% to 262 apiece on BSE in Monday’s opening trades.

The first round of capital injection is expected to be completed by June 2022 and the remaining funds will be injected by the end of the current calendar year, Tata Power said in a statement.

“Tata Power has announced the consolidation of all Green Enterprises (RE) under TPREL and a binding agreement with a consortium led by BlackRock. 310-370 billion (average INR 340 billion) for TPREL,” brokerage firm Edelweiss said in a note.

Looking ahead to the deal, the stock is up 20% in seven trading sessions. Therefore, even though the deal is structurally positive, the brokerage expects the stock to stabilize in the short term, as the triggers are working well – Mundra’s resolution and rising earnings considering prices. coal currents are the short-term triggers.

“The value of the transaction is slightly below our expectations. Even so, this is a very positive development for Tata Power, as it is financing renewable energy capital expenditure for the next three years, and the new structure optimizes capital deployment and future fundraising. Overall, the transaction would accelerate the growth of renewables,” the note states.

In his opinion, the fundraising is likely to provide enough growth capital for the next 4-5 GW of renewable energy capacity additions and 4 GW of new manufacturing facilities.

“This will have a multiplier effect on earnings growth due to the integrated business model and could fuel TPREL’s operating profit by 2.5 to 3 times over the next three to four years. In addition, the new TPREL’s structure would optimize upstream liquidity and leverage management and fundraising,” Edelweiss’ note added.

The opinions and recommendations made above are those of individual analysts or brokerage firms, and not of Mint.

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