We hereby present you our investment idea for Equity Investment i.e “Pick of the Week”. A thorough analysis of company, industry and economy goes behind our stock ideas for you. With the “Pick of the Week”, you may earn superior returns in stock market over a time horizon of 6 – 9 months.

INVESTING RATIONALE

• Renewables on strong growth trajectory: The company’s renewable portfolio ( minus EPC) reported 20% increase in EBITDA in Q3FY19 to Rs 4.7 bn on improvement in PLFs and capacity addition. Moreover, extension of Mumbai PPA for 5 years till FY24 reassures standalone regulated business to remain steady state.

• Underlying EBITDA on track: Adjusting for the one-offs in the coal companies, Tata Power’s underlying EBITDA stood at Rs 25 bn in Q3 (9M: Rs 74 bn – which reassures that TPWR is on track to deliver annualized underlying EBITDA of Rs 100 bn.

• Debt reduction plan to strengthen balance sheet: Tata Power reduced debt by ~ Rs 3200 cr in Q3 with net D/E at 2.24 x. The company plans to reduce debt / equity to less than 2x by FY2020 through(a) pending receipts from sale of defense business (~ Rs 2200 cr) (b) receipts from Arutmin mine ( ~Rs 1800 cr) (c) stake sale in Tata Projects ( estimated to fetch ~ Rs 3500 cr) and other non-core assets over next 2 years. This is expected to improve bottom line and key driver for EPS growth going forward.

• Mundra UMPP: The company is undertaking measures such as a) blending low GCV coal (32% in Q3 vs. 10%,YoY), (b) competitive coal procurement, and (c) lower cost of funding by replacement of ECBs with rupee loans– to improve operational efficiencies of plant. Further the management remains optimistic on the tariff revision; outcome to emerge only post upcoming elections. Any positive outcome on tariff revision for Mundra UMPP to provide additional upside.

• We reiterate a BUY with a target of Rs. 77.6