Torrent Power Stock Research Report

A sub-par quarter…..

Torrent Power reported a sharp decline in profit QoQ in Q2FY25. Q1 profit was boosted by merchant sales from stranded capacity and expansion in clean spread. Profit normalised in Q2 due to lack of merchant sales. In Q2, it won 2GW + 12GWH of pumped storage power project from a state utility. It has to set up the power plant under 48 months. Locked-in RE capacity stood at 3.4GW, as of Sep’24.
We estimate locked in EBITDA of INR 39bn for renewable energy portfolio. Excluding the value of conventional business, we believe market is valuing RE business at 16x, which is expensive. Downgrade to REDUCE (from Hold) with SoTP-based revised TP of INR 1,500/share (INR 1,825/share earlier) of which, the generation, distribution, and transmission portfolios and liquid assets are valued at ~INR 440, ~INR 960, ~INR 20 and ~INR 80 each per share.

Sub-par performance in Q2FY25

Torrent Power reported sub-par performance in Q2FY25; revenue was up 3% YoY at INR 72bn, while EBITDA stood at INR 12bn (-1% YoY) and PAT declined to INR 5bn (-9% YoY). Extended and heavy monsoon led to lower power demand, thereby, impacting the sale of merchant power and overall margins during the quarter. Profit was also impacted by higher depreciation and interest costs YoY in Q2FY25.

Flat discom sales; drop in RE generation

Licensed distribution/distribution franchisee volumes were almost flat for both the segments, growing at ~1% YoY to 6.4BU/2BU. Generation was flat YoY at 3BU in Q2FY25. While generation from thermal plants was slightly up (+1% YoY), generation from RE assets was down by ~2% YoY mainly due to inclement weather conditions impacting wind PLFs (-440bps YoY).

Locked-in RE capacity grows to 3.4GW

Locked-in RE capacity grew to 3.4GW, as of Sep’24. Expect RE addition of ~2GW over the next 2 years. The company is also foraying into pumped hydro storage with 2GW storage project awarded by MSEDCL for which PPA is expected to be signed shortly. The company has also been awarded 18KTPA green hydrogen capacity under PLI scheme.

Downgrade to REDUCE from Hold

We downgrade the stock to REDUCE from Hold with SoTP-based revised target price of INR 1,500.