In the past couple of months, the bourses have seen the old economy stocks gain in strength. Given the turmoil in technology stocks, the bourses have increasingly looked at defensive counters for refuge. It is against this background, we analyse Tata Power’s performance in the recent past.
Tata Power, India’s largest private utility company has moved up nearly 40% since November 1, 2000. In light of the rally in old economy stocks, this rise should not come as a surprise. But the way in which this rise has come about is creditworthy. If you look at Tata Power’s share price chart below, the rise is consistent.
In the recent past only cement companies or the PSUs have witnessed such consistent rise in valuations. For cement, a marked rise in despatches, 3 continuous price hikes and a cut in production acted as the trigger. For PSUs (especially oil stocks) the rise has been in expectation of some disinvestment moves by the government.
Tata Power has no rise in power tariffs in the offing, so why the rise? The reasons are more fundamental. It seems that the restructuring moves initiated by the Tata Group over the past one year are finally paying off. The merging of the three Tata Electric Company into one single company as Tata Power, the announcement that Tata Power will be the Tata Group’s vehicle for foray into communications, the hiking of stake in the 1000 MW Mangalore Power Company to 50%, the transfer of the oil exploration unit of Tata Petrodyne to Tata Power, all these moves seem to have led to this re-rating on the bourses.
Going by our projections, the stock trades at a P/e multiple of 5 times its FY01 estimated earnings. Given the current shift towards old economy companies, Tata Power valuations still have some charge left in them.
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