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Expanding renewable and transmission footprint

Torrent Power Ltd. (TPL) is one of the leading power utility companies in India, with functions across generation, transmission, and distribution. It has operations spread across Gujarat, Maharashtra, UP, and Karnataka.

* TPL’s revenues grew by 23% YoY to Rs. 9,034cr. Margins expanded by 440bps enabling EBITDA growth of 57%YoY. PAT surged 87% YoY to Rs.996cr.

* TPL is currently developing two transmission projects, namely Khavda transmission project (project cost Rs.800cr.) and Solapur Transmission project (project cost Rs.470cr.).

* TPL plans to expand its renewables portfolio, with over 3.2GW of projects under pipeline. This, combined with the transmission projects, will see TPL invest close to Rs.20,000cr. in the next 3-4 years.

* We shift the valuation methodology from P/Bk to SOTP, valuing the new transmission and pumped storage projects on DCF and the green hydrogen project on a P/Bk basis. We arrive at a target of Rs.1,893, thereby upgrading our rating to “ACCUMULATE “ rating.

Stellar Q1FY25 Performance, PAT surged 87%YoY

TPL’s revenues grew by 23% YoY to Rs.9,034cr., driven by a 65% increase in the thermal generation segment. EBITDA rose by 57% YoY, with margins expanding over 440 bps. PBT increased by 85% YoY, and adjusted for a nonrecurring carrying cost of Rs.102cr. approved by the regulator, it still showed a 71% growth. Reported PAT was Rs.996cr., up 87% YoY.

Project wins in Transmission segment

TPL has two transmission projects currently under development, namely, Rs.800cr. Khavda transmission project with a post tax return on equity of 15% plus incentive and the Inter-State– Transmission-Scheme (ISTS) Solapur transmission project, which was on a competitive bidding basis. The Solapur project has annual transmission charges of Rs.50cr. per annum for 35 years, and the project cost is expected to be at Rs.470cr. The project is expected to be commissioned in 24 months from the effective date.

3.2GW renewable projects under pipeline

TPL is keeping strides with increasing the renewables share in its generation portfolio. It has 3.2GW of renewable capacity addition in its pipeline, with 65.75% contracted capacity. 17.5% of these projects are from commercial and industrial customers. While most of the projects have an off-taker, the generation from the Airpower Hybrid project will be sold directly in the merchant market. The total cost of projects in pipeline is expected to be at Rs.18,975cr. with the projects expected to be commissioned progressively over the next couple of years. This, coupled with the project development cost of transmission projects, pegs the investment at Rs.20,000cr over the next three to four years.

Valuation

We anticipate the EPS/BVPS of TPL to grow at 36%/15%CAGR in the FY24- 26E period. As Torrent Power expands its renewables portfolio and transmission footprint, we shift the valuation methodology from P/B to SOTP basis, valuing renewables, thermal, and distribution projects on an EV/EBITDA basis. We value the upcoming transmission projects and pumped storage projects on a DCF basis, while the green hydrogen project is valued at 2X P/Bk multiple. We arrive at a target price of Rs.1,875, thereby upgrading the stock to an ACCUMULATE rating.

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