Industry Overview

Power is one of the most important aspects for a developing and big country like India and its demand can only grow with time as on 30th November, 2023 India has 426.13 GW of installed capacity and considered as 3rd largest producer and consumer of power in the world. Requirement of electricity has increased by 8.6% from last year. To help DISCOMs improve their operational efficiency and build a sustainable financial ecosystem GoI has launched Revamped Distribution Sector Scheme (RDSS) under which result linked financial assistance will be provided to DISCOMs, under RDSS an outlay of Rs. 3.04 Lakh crore is fixed till 2026. 

Two companies those who operate in forefront of this industry are TATA Power and Adani Power and this article we’ll be looking at their position and performance.

Business Overview 

TATA Power – TATA Power is one of the largest integrated power companies of India with a retail user base of 12.9 million.  It is also India’s largest solar rooftop company. 

Adani Power – Adani Power is part of Adani group and it is India’s largest private thermal power producer. It is also India’s only IPP with in house mine to plant capabilities.

Market cap as on 18th March, 2024

In terms of market capitalization Adani power is much bigger than TATA power a difference of more than Rs 800 billion is noted between both companies.

When we talk about the operational parameter that is power generation capacity, Adani power has slightly more capacity than TATA power the difference is of more than 700 MW.

Capacity Distribution – 

Adani Power definitely have more capacity than TATA Power but TATA has a diversified portfolio which includes eight different forms of power generation which gives an edge to TATA Power as it decreases dependency on one particular form and makes their business less risky and more valuable.

PLF (Plant Load Factor) – 

Plant Load Factor or PLF identifies actually capacity of a plant compared to its current production. Here we can see Tata Power has significantly improved its PLF in thermal plants where as overall PLF for Adani Power has been decreasing which is a concern for Adani Power.

Going Forward – 

• TATA Power 

1. Tata Power has current capacity of 14,453 MW and expecting to increase it to 19,205 MW in coming year, with 1,209 MW increment in Solar and 3,543 MW increment in Hybrid. After this 54% of total capacity of TATA Power will be of green and clean energy and following this trajectory TP will have 70% portfolio of green energy by 2030 and 100% by 2045.
2. TATA Power – EZ Charge, through this segment TP will be deploying EV charge points across India and for that they have tie ups with IOCL, Assam Government and Kanpur Municipality corp.
3. GW cell and module manufacturing plant is operational and will have 4.3 GW cell line ramp-up by Q1 FY25.
4. Pumped Storage Hydro Plants (PSP)- TATA Power is developing two such plant with capacity of 1,000MW and 1,800 MW and they will be operational by 2027 and 2028 respectively.

• Adani Power

1. For capacity expansion APL is working to expand one of its existing thermal plants which will add total capacity of 1,600 MW.
2. APL has 81% of its capacity contracted and these contracts will allow APL to pass its fuel cost or increase tariff if needed. This prevents APL from any losses due to fluctuations in coal prices.

Financial Overview 

In this segment of article we are going to look at the different parameters from P&L and Balance sheet of both companies to figure out which company is performing better.

• Revenue – 

In terms of revenue TATA Power is much bigger than Adani Power and the CAGR for TATA Power is also higher. But both companies have shown significant growth in last fiscal year.

Adani Power has shown a significant growth between FY22 and FY23 and there are primarily three reasons behind that, firstly company has increased tariffs to address increased cost of imported coal, secondly company has booked revenue from pending regulatory claims which was a onetime revenue, thirdly company has acquired Mahan Energen Ltd (MEL) and it leads to capacity expansion by 1200 MW.

TATA Power similarly has reported high growth in revenue during FY23 and growth came through three primary reasons. Firstly, company has operated under guidelines given by Ministry of Power which has allowed TATA Power to operate and pass all costs from its Mundra Power Plant; secondly company has witnessed increased sales in its distribution business and thirdly higher capacity addition in renewable business.

When we compare sources for revenue for both companies definitely TATA Power has produced revenue through more sustainable sources and it gives company an advantage over its peers.

• Debt/Equity – 

Both companies have significantly decreased their financial leverage which makes their operations less risky as well as give them room for future capex requirements. Currently both companies have almost same level of leverage but looking at the profile for past three fiscal years Adani Power have significantly decreased their financial leverage.

• EBITDA – 

In terms of EBITDA Adani Power has performed better than TATA Power, they have higher EBITDA as well as higher CAGR. It reflects the operational efficiency of Adani is better than TATA and when we look at the cost structure TATA has higher manufacturing as well higher employee cost which has dragged down their EBITDA below Adani even after generating more revenue.

• Return and margin – 

Adani Power has higher return on capital employed which tells us that Adani Power has been using capital more efficiently compared to TATA Power. TATA Power even after generating higher revenue not able to generate higher returns due to higher cost structure.

When we look at both companies individually both have improved their margins over the year, but growth for Adani Power is evidently exceptional. And year by year Adani Power has higher margins compared to TATA Power there is a major reason for that. Adani Power has reduced their debts significantly leading to lower interest payments; whereas TATA Power has similar levels of interest payments every year. 

Valuation Overview 

For interpretation of valuation we are going to look at two major valuation parameters that are PE and PB ratio. 

When we compare both companies on grounds of PE ratio TATA Power is highly overvalued their PE is four times higher than the Adani Power where as in terms of PB ratio Adani Power is slightly overvalued. So overall in terms of valuation TATA Power has comparatively rich valuation in market. TATA Power has diversified business which includes power generation from eight different sources which makes their business less risky compared to Adani Power which is highly dependent on thermal power and looking at the future plans definitely TATA Power has bigger and diversified vision for company accounting all these factors we can understand the source for rich valuation of TATA Power.

Better Power Company 

On different parameters TATA and Adani Power has been performing very efficiently. 

On Financial front TATA Power has better revenue but Adani Power have higher EBITDA, higher returns and higher margins. But when we compare operational parameter TATA Power has been exceptional with higher PLF, diversified asset allocation, diversified vision going forward where as Adani Power is dependent on thermal power which is a concern.

Note – Sources used in this article:

• Press Information Bureau (PIB.gov)
• Annual reports, company website, Investors presentation

• BSE India

  -Team Icore