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Shares of Tata Power continued to extend decline with the stock down about 12% in the last five trading sessions. Analysts believe that the sharp rally in the multibagger stock, that is up over 169% in a year's period, leaves limited room for upside.

Tata Power has announced consolidation of all green businesses (RE) under its subsidiary Tata Power Renewable Energy (TPREL), and binding agreement with a BlackRock-led consortium, concluding the long-awaited divestment of stake in its renewables businesses.

“As per our estimates, the RE business has been valued at ~12x EV/EBITDA on full capacity commissioned basis (average of our FY23E/FY24E estimates). Though, it is higher than the valuation normally ascribed to a renewable company that listed recently through IPO, we believe, at CMP, the deal is priced-in," said brokerage ICICI Securities.

Yet, the brokerage believes the long-term potential of the company's businesses is high as it is best placed to participate in RE capacity addition programme of GoI and any discom privatisation. ICICI Securities has reinitiated its coverage on Tata Power with a Hold rating and a target price of 262. Mundra resolution and RE tendering & ordering pick-up are key near-term drivers.

As per another brokerage Edelweiss, the disappointment in the $4.5 bn RE deal is largely EV-infra led (at negligible value) and believes RE generation and the EPC portfolio have rich valuations, which could potentially re-rate the entire sector.

“We believe, Mundra resolution is on the cards with a tricky demand-supply situation. Coupled with a high coal price scenario, these could be potential triggers for the stock. While we remain structurally positive on Tata Power shares, a sharp rally leaves limited room for upside. We downgrade to ‘Hold’ with a revised target price of 265," Edelweiss' note stated.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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