Tata Power’s transformation plans sound grand, but face many tests
Shares of Tata Power Co. Ltd gained 8% on Thursday after the company unveiled a five-year plan aimed at improving return ratios and reducing dependence on the legacy business. By FY25, the company plans to double its revenue, triple profits and drive up the languishing return ratios as the accompanying chart illustrates.
What’s more, the company plans to achieve this keeping its leverage in check. In fact, it aims to bring down the net debt from about ₹40,000 crore at the end of June to ₹25,000 crore by April 2021 and maintain it at those levels. All of this sounds grand, but the proof of the pudding will be in its eating.
The debt reduction is premised on the sale of non-core assets, fund infusion by promoters and establishing an infrastructure investment trust (InvIT) for renewable energy assets. The good news is that the company has made progress on the first two. It aims to complete the InvIT in the current fiscal year, which alone can take away ₹11,000 crore of debt from Tata Power’s books.
