Beat in Q2 and interest cost savings are expected to drive consensus upgrades; ‘Overweight’ maintained
TPWR reported revenue and Ebitda growth of 15% and 11% y-o-y, respectively. TPWR’s revenue, Ebitda and adjusted PAT were 13%, 17% and 5%, respectively vs. our estimates and 12%, 10% and -6% vs. consensus. PBT was 160% above our forecast driven by Ebitda beat and higher other income; however, effective tax rate was high leading to marginal beat at the adjusted PAT level.
(i) Preferential issue of new equity shares to promoters was concluded at Rs 26 bn;
(ii) the plan of Renewable Invit is progressing well as a non-binding agreement has been signed and due diligence by investors is underway. Management is hopeful of closing the deal in the next two to three months; (iii) sale of Defence business was completed for EV of Rs 10.8 bn (cash received Rs 5.4 bn balance towards debt) in F3Q21; (iv) on merger with specified subsidiaries, TPWR has received approvals from SEBI and RBI, but NCLT approval is awaited (could take three to six months); (v) Arutmin coal mine licence extended for an initial period of 10 years; (vi) Crisil has upgraded long-term rating of TPWR to AA/Stable and ICRA has revised long-term rating to positive from stable.
Cash flows and balance sheet
(i) CFO in F1H21 was Rs 46.6 bn (F1H20 Rs 32.7 bn); (ii) net debt reduced from Rs 436 bn (F4Q20) to Rs 368 bn (F2Q21). Debt reduced q-o-q: standalone by Rs 29.1 bn, Coal SPV’s Rs 5.3 bn, renewable Rs 3.6 bn and other businesses Rs 4.5 bn; (iii) net debt/equity and net debt/Ebitda have improved to 1.52x and 4x, respectively; (iv) TPWR has incurred capex of Rs 12.7 bn (F2021 guidance Rs 38 bn).
PLF was 79% (+1,400bp y-o-y). Fuel under recoveries decreased to Rs 0.3/unit (F2Q20 Rs 0.52) – lower spot coal prices and competitive shipments. As of F2Q, Mundra debt was Rs 80.8 bn and management infused cash of Rs 26 bn in Oct-20 and will infuse a further Rs 15 bn in Nov-20, thus bringing external debt to Rs 40 bn and making the project sustainable.
Indonesian coal unit: Production and sales were -11% and -4% y-o-y, respectively. Net realisation after royalty and cost of production (including inventory) were -21% and -15% y-o-y, respectively, leading to gross proft/ton going down by 38% y-o-y. Coal companies are working with contractors to reduce mining costs.
Solar EPC business: Order book is Rs 92.7 bn as of date (2.2GW orders). TPWR is targeting to execute the same over the next 12-18 months and margins are expected to be in high-single-digit levels. Management noted 50% of the order book is captive in nature.