Know the Company- Tata Power
Tata Power is a Power generation & distribution company. It was founded in 1919 and is the third largest power company (9800 MW) after NTPC (65000 MW) and Adani Power (12500 MW).
What the company does?
So, don’t think it only produces power. Tata power has many facets to it. Its Businesses can be segregated into old and new. The old business comprises of power generation which are fossil fuel based. The company has Power Plants in Maharashtra, Gujarat & West Bengal. It also has a coal division to facilitate coal for these power plants and the mines are located in Indonesia.
The new business is what is the exciting part. Under this the company has renewables-based power generations, Solar cells manufacturing, EV charging stations, home automation and Transmission and distribution management business.
Under the Transmission and Distribution management, company takes up ownership of various state distribution companies. The revenues and profitability are dependent on reducing the losses for these state distribution companies. Over the years, Company has taken over certain areas of Delhi, Mumbai and Orissa under this arrangement.
Past Problems-
Mundra Power plant is one ambitious plant taken up by Tata power to produce 4150 MW. As of 2020, this plant made up for 20% of total revenues of company. However, since inception this power plant has been loss making for the company primarily due to rising coal and interest cost and limited ways to pass on the increased cost as tariff increase. Even after employing 9% of its total capital, the project has never generated profits. However, in 2020, Tata power management has merged Mundra power plant with itself and has paid off almost the entire loan pertaining to this plant.
Reducing the Debt through Invits
Renewable’s energy generation although is much in demand today, but the business still is capital intensive while the revenues and profitability are still below par. For Tata power, Renewables division takes up 18% of total capital employed while still generating 2% of the overall profits. The primary reason is due to competition intensity, bids are low, and thus return on capital employed is in single digits.
Keeping in view the debt burden (22% of total debt of the company) and low return visibility, management has decided to launch InVits for such renewable companies. While the company will give up majority stakes in these assets, it will continue to derive dividend income.
Way Forward-
The solar EPC business has been growing off very well and the management is quite gung-ho about it. Under this division, the company takes us solar cells manufacturing as well as setting up plants for third parties. It has till date set up plants producing 2.7 GW and still has 2.2 GW worth of orders in pipeline. The company has also been looking at EV charging stations, tying up with automobiles manufactures. Indian Government has target of reaching 500 GW of renewable capacity by 2030. Tata power which already has 25% market share, would be a major beneficiary in this segment.
Government of India, through its Aditya Scheme is aiming to bring down Transmission and Distribution losses of state companies from average 20% currently to 12% in next decade. Tata Power has over the years proved its expertise of reducing losses for these companies in Delhi, Mumbai, Ajmer operations. The scope of opportunity available can be understood from this fact that as of 2019, this segment has total 27.5 Crore customers and government owned distribution companies has 94% market share. Tata power has first mover advantage, expertise and experience to capture major portion of this share.
