Tata Power scores high on the yard sticks of business model and execution capability and offers both, growth and value. The company is expanding its power generation capacity.
The company is expanding its power generation capacity from 2,474 mw, to about 12,861 mw by FY 2013, translating into a CAGR of 40 per cent. Though this provides good visibility, there could be challenges in terms of funding these plans, given that its parent company recently decided against conversion of warrants (worth Rs 1,340 crore) allotted to it.
Tata Power currently has about 5,660 mw (including the 4000 mw Mundra UMPP) of power projects under execution. According to estimates, the company would need to infuse equity in the range of Rs 3,500-4,000 crore during FY10-11, including for its Mundra project. Barring this, which could be an issue in the short-term, the company is trading at attractive valuations of 1.3 times FY10 estimated book value.
Checkout: Tata Power - Buy Rating From Indiabulls Equity Research
Analysts have put a price target of Rs 850 per share based on the sum-of-parts, including the value of different investments like Tata Communication, Tata Tele (Maharashtra), Tata Tele and Indonesian coal mines. “On standalone basis, the valuations might not look attractive, but if we exclude the value of its stake in the Indonesian coal mines at about Rs 300-350 per share, the stock becomes more attractive," says Mohit Kansal, analyst, KR Choksey Shares and Securities.
Within the power space, which is relatively a safe haven providing stable growth, investors looking for high safety, could also look at the India's largest power utility, NTPC. The company's execution capability, strong cash flows, low leveraging and huge expansion plans, make it safer bet. However, the stock trades at a premium valuation of about 2.3 times FY10 estimated book value.
Checkout:Best stocks to buy from Indian power sector
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