Markets
Torrent Power’s green energy push improves its earnings visibility
Summary
- The company is expanding its renewable energy capacity by 3 GW, in addition to the 0.3 GW commissioned in the September quarter. This will raise the share of renewable energy in its total generation capacity from 32% to 59%.
Torrent Power Ltd’s stock has gained more than 10% this week after it announced the opening of its qualified institutional placement (QIP), for which it set the floor price at ₹1,555.75 a share. The stock also seems to be generating greater interest since the recent listing of NTPC Green Energy Ltd, which is up about 30% from its issue price so far.
With its strong financial position further bolstered by the proposed QIP, Torrent appears well-placed to make the most of domestic green energy demand. It is expanding its renewable energy (RE) capacity by 3 GW, in addition to the 0.3 GW commissioned in the September quarter (Q2FY25), which will raise the share of RE in its total generation capacity from 32% to 59%.
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These projects, to be commissioned by H1FY27, entail a total investment of more than ₹19,300 crore and will increase its installed capacity to 7.5 GW. The anticipated investment implies a near doubling of its balance sheet during FY24-27.
The company has entered into power purchase agreements and has secured land for most of the capacity under construction, providing higher certainty. “Torrent power is swiftly building renewable capacities along with first-mover in tying up large scale pumped hydro storage capacities and foraying into transmission projects. We estimate these growth initiatives to result in significant growth going forward (FY24-30 CAGR of 11%/21%/25% in revenue/Ebitda/PAT)," said JM Financial Institutional Securities Ltd.
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Torrent is also exploring opportunities in other segments within green energy. It has identified sites to build 8.4 GW of pumped hydro storage generation capacity, and has received a letter of award to procure 2 GW of this from Mahadiscom. It has also qualified for incentives under the government's production-linked incentive scheme for 18,000 tonnes per annum of green hydrogen production.
Muted financials
However, its Q2FY25 financial performance was muted, with consolidated Ebitda slightly lower year-on-year at ₹1,310 crore, hurt by the heavy monsoon, which reduced thermal power demand. Ebitda from generation, including RE, fell 29% owing to lower capacity utilisation and lower realisation, while distribution Ebitda growth was 14%.
Torrent’s shares are up 77% to about ₹1,675 so far in 2024 with ongoing capex providing greater earnings visibility, making valuations richer to that extent. Total capex was ₹3,650 crore and in FY24 is projected to cross ₹5,000 crore in FY25. The QIP should help keep its net-debt-to-equity ratio (0.8 at FY24-end) within a comfortable range. Yet, investors will need to monitor the project execution timeline for any surprises.
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