Stock corner: ‘Add’ on Torrent Power, target price raised to Rs 327
In an order issued by the Gujarat Electricity Regulatory Commission (GERC), tariff on power from the 382.5MW brownfield gas project, UNOSUGEN, which was determined by CERC in FY14, has been finally adopted, albeit with certain changes. As against a fixed cost of `3,470 crore (`1.68/unit) as in FY19, Torrent Power (TPW) has offered recovery of `230 crore (`1.1/unit) prospectively, hence foregoing fixed cost recovery till date.
Assuming this recovery and adjusting higher O&M costs, we upgrade our EPS estimates by 8.9/10.8% for FY20/FY21 and increase our target price to `327/sh from `295. However, due to the recent run- up in stock price, we downgrade our rating to ‘add’; nevertheless, we remain positive on the company in the long term as it is one of the biggest beneficiaries of distribution reforms.
