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Beat on strong EPC performance

EPC business picking up; maintain Buy

* TPWR’s 4QFY21 result reflects strong numbers, led by higher execution for its solar EPC business and interest cost reduction. Adjusted PAT stood at INR3.5b, and was 11% higher v/s our estimate of INR3.2b.

* Divestment-related measures and infusion from the promoter has aided debt reduction. The EPC businesses have picked up pace, led by the healthy order book at Tata Power Solar. Possible benefits from the merger of CGPL and Tata Power Solar with boost profitability. Maintain Buy with a TP of INR123/share.

Profits jump on strong EPC performance

* Adjusted PAT at INR3.5b (4QFY20: INR2.1b) in 4QFY21 was 11% ahead of our estimate of INR3.2b. The beat on our expectations was led by: a) strong solar EPC performance, and b) reduction in interest cost.

* EBITDA for Solar EPC saw an over 2x YoY jump to INR1.85b (v/s our estimate of INR0.7b). Interest costs fell sharply (8% QoQ) to INR8.9b (v/s our expectation of INR9.5b).

* Performance of Mundra-Coal JV hedge though was impacted with Mundra (EBITDA) and coal JVs (PAT) coming in at INR3b v/s INR3.8b in 4QFY20. This was led by lag impact of index setting.

* RE EBITDA (TPREL + Walwhan) was steady YoY at INR4.8b, while Odisha DISCOMs reported a loss of INR0.1b in 4QFY21.

* Net debt reduced to INR381b (v/s INR471b at FY20), led by monetization efforts (Shipping companies, Cennergi and SED) and infusion of INR26b from the promoter. Adjusted profits were up 23% YoY at INR12.5b in FY21.

Highlights from the management commentary

* The management noted that the monetization plan for its Renewable assets are still in the works, with TPWR looking at a bigger opportunity for monetization.

* It expects commissioning of 900MW of its RE projects over the next 6-9 months.

* The management expects to incur a capex of INR70-80b in FY22. Around 50% of this would be for its Renewables portfolio, while another INR10b is related to Odisha DISCOMs.

* AT&C losses at CESU for Jun’20-Mar’21 stood at 25.5%. The company has earned incentives of INR180m for past recoveries.

EPC and Renewable business to drive growth; maintain Buy

* We expect Solar EPC to give a leg up to earnings for the next two years. Recent award wins, particularly from NTPC, have seen its EPC order book swell up to ~INR90b, thereby providing strong visibility. We expect EBITDA from Solar EPC to rise at 16% CAGR over FY21-23E to INR4.4b.

* This, combined with: a) commissioning of Renewable projects, b) takeover of Odisha DISCOMs and c) lower interest costs should lead to 24% PAT CAGR over FY21-23E. Benefits from the merger of CGPL and Tata Power Solar with itself provide boost profitability. We maintain our Buy rating on TPWR with a SoTP based TP to INR123.

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