ICICIDirect - Pick of the Week: Tata Power Company (Buy: Rs 501, Target: Rs 610)

Tata Power Company (TATPOW)



Current Price: Rs 501 Target Price: Rs 610



Tata Power Company is India's largest private sector electricity generating company with an installed generation capacity of over 2,300 MW. The company has a presence in all areas of power sector generation (thermal, hydro, solar and wind), transmission and distribution. Its thermal power stations are located at Trombay in Mumbai, Jojobera in Jharkhand and Belgaum in Karnataka. The hydro stations are located in the Western Ghats of
Maharashtra and the wind farm in Ahmednagar.
An optimum mix of hydel and thermal capacity enables the company to supply
power at competitive tariffs to its customers. Among its achievements, the
company has to its credit the installation of India's first 500 MW unit at
Trombay, the first 150 MW pumped storage unit at Bhira, and a flue gas
desulphurization plant for pollution control at Trombay. The company's
growth momentum is expected to intensify after it was awarded the bid for
the Mundra ultra mega power project. It is also expanding capacity and has
taken stakes in Indonesian coal companies to secure fuel supplies.

We expect sales to grow from Rs 5,740 crore in FY06 to Rs 7,890 crore in
FY08E. Net profit is expected to rise from Rs 637 crore to Rs 790 crore. We
expect the company to earn a RoE of 14% on its investments in the Mundra
ultra mega power project assuming a 70:30 debt-equity mix. We estimate FY08E
EPS at Rs 40.10 and set a price target of Rs 610. At this price, the stock
will trade at P/E of 15.21x, giving an upside potential of 22% from the
current price of Rs 501 within a 12-15 month time horizon.

Download here