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TATA Power Business-Analysis

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Everyone in today’s era is inclined towards financial planning and having another source of earnings through investments. Though it is a fantastic idea to invest in the stock market, many people become bait to this and end up losing their hard-earned money. The biggest reason behind the failed investments is the negligence to analyze and research the company you are planning to invest in. Research is the building block to make your small investments give you high returns. Before putting your money into a stock, analyze the equity and debt structure, revenue-generating ability, top management, and organizational structure of the company.

Since you have understood the significance of research and analysis of a stock, so here we present the TATA Power analysis for those who are willing to purchase shares of TATA Power. 

TATA Power business overview

The firm was started as The Tata Hydroelectric Power Supply Company in 1910. It gained its popularity when it was amalgamated with Andhra Valley Power Supply Company in 1916. The first hydroelectric power plant of the TATA group was established in Khopoli in 1915. It was a 72 MW hydroelectric station. Today, it is the largest private power utility established in India with a major expansion and growth goals. The current position of the company on the basis of its revenue from different sectors are mentioned here for your reference-

- Power Distribution - 44%

- Thermal and Hydropower Generation – 36%

- Wind and Solar Power – 7.2%

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International Presence

Tata power has created its significant international presence as well. It has invested in a 30% stake of an Indonesian coal company named PT Kaltim Prima Coal. Tata Power has established itself in South Africa through a Joint venture called “Cennergi” with Exxaro Resources, a diversified resource company. It also has a hydro project going on in Bhutan, in a partnership with The Royal Government of Bhutan. In Singapore, it has a wholly-owned subsidiary named Trust Energy Resources that is involved in the operation of coal supply, shipping, and trading. Also, Tata Power has some projects in Australia through investment in clean coal technologies.

TATA Power business model for expansion

 The company has already charted out its blueprint for multi-fold growth in the next five years. The main focus of the company has significantly shifted from the thermal power plants to the renewable resources that it could utilize for the generation of power. This diversification is due to the proactive thought to expand the company’s investment in next-generation power solutions and environmental protection.

At present, the firm generates 3883-megawatt power from renewable energy and has an elaboration plan to further take this figure to 15000 in the next five years. Keeping in view the future and thinking ahead, we could easily tell that renewable sources will have enormous demand because it will develop a lot of opportunities in the upcoming years. This is the reason TATA Power will face huge competition in this growth plan.

The company’s plan to use renewable energy sounds prudent as they are highly economical in nature and also provides the honour of protecting the environment. The fixed cost for maintaining the thermal power plants at different locations is very high as compared to the fixed cost incurred for renewable resources. Also, in the case of these energies, there is no need to research and incur expenditure for mitigating pollution as it is required for the use of non-renewable resources.

TATA Power business strategy

Foresightedly company has also invested in next-generation power solutions. Keeping in mind the future of India, the company has already installed 100 electric vehicle charging stations in various cities, including Mumbai, Chennai, Bengaluru, Pune, and Hyderabad. It desires to become the first mover availing this opportunity and so has announced to expand this number to 700 in the country by the end of the financial year 2021.

Tata Power is also working on solar rooftop solutions and microgrids for expanding the power distribution and network. The company expects revenue generation of 3500 crores in the financial year 2025 from these three major blueprints it has decided.

TATA Power distribution 

The company is also focusing on expanding its distribution and network system. At current, it is having approx 25 lakhs of subscribers. The company is planning to increase this digit to 2 crores in the coming five years. Also, it has earned a revenue of 11,186 crores from the business of distribution. 

The most important business decision that the company took towards this goal is the acquisition of the Central electric supply utility of Odhisha. Tata Power will grow at a fast pace if it will get power distribution privatization opportunities in the long run.

New contracts of TATA Power

The company has received various new contracts in the field of using green energy for power generation. All these different contracts in this new sector of renewable resources are offered to the company due to its highly reputed brand name in the market. Let’s give a glance at a few of the recent contracts in which TATA Power has been indulged.

- Indian Hotels Company Limited has recently joined hands with TATA Power for the supply of solar energy to be used in its hotels.

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- TATA Power has recently signed a contract for 1200 crores with the Ministry of Defence for modernization of its infrastructure at 37 airfields of the Indian Air Force, Indian Navy, and Indian Coast Guard.

- Gujarat Urja Vikas Nigam Limited has also contracted with TATA Power fo the 12-megawatt solar project.

- Also, TATA Power will build a 300-megawatt solar project for NTPC.

Factors to be kept in mind

- The Mundra Thermal power plant of the company is constantly incurring a loss for a few years. The company had shut down most of its units in the recent past and is planning to bring this plant at least at a breakeven point.

- The company is incurring huge interest costs due to the high amount of debt in its financial statements. It is continuously making efforts to pay back the major part of these debts by making various strategic decisions.

- Also, the company’s profit and the share price has decreased in the past 10 years. The net profit for the financial year 2011 was Rs. 2000 crores, whereas for the financial year, 2020 it has been reduced to Rs. 1017 crores.

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Similarly, the company’s share price for the financial year 2011 was Rs. 100 per share that is now decreased to Rs. 60 per share.

- Recently, the top management of the company has been changed and this is a major factor to be kept in mind while making decisions. It is important to have an eye on the performance of the company to get a basic idea that whether the changed management will make the company thrive more or whether they will achieve their set targets or not. For this going through the quarterly report of TATA Power is the best option.

We hope that this gave you a great insight into TATA Power Private Limited, and this will help you to make a wise decision about your investment plan. As said earlier also, please do proper research before investing in any stock so that you would get an insight into the company’s performance, and this will make your investment decisions easy.

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Finnovationz