In this article, we will explore Torrent Power Ltd. fundamentally, understand its business model and industry, and determine whether it’s a good investment fit for you.
Torrent Power Ltd.
Torrent Power Ltd. is a leading Indian power utility company with a well-diversified portfolio across the generation, transmission, and distribution of (GTD) segments. It operates in several locations in India including Gujarat, Maharashtra, Diu, Daman, Dadra & Nagar Haveli, Agra, Bhiwandi, Shil, Mumbra & Kalwa, and Dholera. Currently, the company serves a large user base of over 4.2 million and a strong track record of delivering reliable and efficient power supply.
During FY22, the company acquired 51% of Dadra and Nagar Haveli and Daman and Diu Power Distribution Corporation Ltd. It has the lowest distribution losses in India which helps it to keep its tariffs competitive.
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Is the power industry a good sector to invest in?
India is both the third-largest producer and consumer of electricity worldwide. The demand for electricity is only growing, owing to an ever-increasing population and the drive towards increased digitalisation. In just FY23, power consumption in India increased by 9.5%, indicating sustained demand.
Within the industry, thermal power still dominates (63.5%), but renewable energy is growing rapidly (43.81%). Solar and wind power are the leading renewable sources, with significant potential for further growth.
Investments in the sector are also huge, with more than $16 billion in FDIs accruing to power between April 2000 and March 2023. The government has a big role to play in the power industry, and has announced the allocation of US$ 885 million in the 2023-24 budget for the solar power sector.
Who are TORNTPOWER’s competitors in the power sector?
Here are some of TORNTPOWER’s competitors:
- Power Grid Corporation of India Ltd
- Tata Power Company Ltd
- POWERGRID Infrastructure Investment Trust
- Adani Green
- Adani Power
- JSW Energy
History of Torrent Power Ltd.
Torrent Power’s legacy stretches back to 1936, with the formation of Ahmedabad Electricity Company Limited (AECL). Over time, the company has made several strategic acquisitions and bold financial decisions that have helped shape it into the influential company it is today.
In 1999, TORNTPOWER acquired Surat Electricity Company, making it a large player in the power distribution landscape. Later on in 2004-05, three companies – Torrent Power AEC, Torrent Power SEC, and Torrent Power Generation – merged to form the unified entity we know today.
Most recently, recognizing the rising potential of renewable energy, Torrent Power entered the solar power generation space, further diversifying its portfolio. As of today, they have a total renewable energy capacity of 1.068 GW, and plan to achieve 10% of their total generation capacity from renewable sources by 2025.
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Investing in TORNTPOWER
Pros
- Dividend payouts are excellent at north of 65%
- Revenues have been growing faster than the industry average at 17%, while the average hovers around 12.3%
- Over the last 5 years, the company has also gained market share from 15% to just over 18.7%
Cons
- Surprisingly, even as revenues and market share increases, the company is making less net income (at 17.58%) than the industry average, which is at 22.4%
- Stock is slightly overpriced at this point, trading at almost 4 times its book value
- Return on equity has also been low at almost 14% over the last 3 years. This suggests that the company might be servicing a lot of debt.
The finances
| Metric | Value |
|---|---|
| Market cap | ₹46,682 cr |
| Book value | ₹247 |
| Dividend Yield | 1.34% |
| ROCE | 18.3% |
| ROE | 19.6% |
| Face value | ₹10.00 |
Shareholding pattern of Torrent Power Ltd.
Here’s the shareholding pattern of Titan:
- Promoters: 53.56%
- Foreign Institutional Investors (FIIs): 6.17%
- Domestic Institutional Investors (DIIs): 21.63%
- Public: 17.19%
All categories of holdings in the company have stayed fairly constant over the last 5 quarters.
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Peer multiple comparison
| Stock | P/E Ratio | P/B Ratio | Div. Yield |
| Torrent Power Ltd | 21.93 | 4.04 | 2.69% |
| Power Grid Corporation of India Ltd | 13.41 | 2.49 | 4.98% |
| Tata Power Company Ltd | 26.96 | 2.63 | 0.71% |
| POWERGRID Infrastructure Investment Trust | -59.02 | 1.38 | 11.85% |
The company seems to be roughly the average of its comparables, which is almost always a good sign. The P/B ratio is a little high, but the market might be pricing the stock a little higher than the comparables because of rapidly increasing revenue.
Conclusion
So, that’s a brief overview of everything you need to know about Torrent Power Ltd. before investing. This information is by no means, however, exhaustive, and we encourage you to do your own research before investing.
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