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Torrent Power falls 17% in Nov, hits 5-month low

Stocks
2 min Read Nov 22, 2024
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Torrent Power’s stock took a 5% hit on Friday, reaching ₹1,507 during intra-day trading, marking a five-month low. The decline came despite a generally strong market, with the BSE Sensex up by 0.79% at 77,754. This drop comes after a 26% correction from the stock’s 52-week high of ₹2,037, hit in late October. Investors may be rethinking their share market investment in Torrent Power after the company posted disappointing financial results for the second quarter of FY25.

Q2FY25 results show a decline in profit

Torrent Power’s financial performance for Q2FY25 failed to meet market expectations, contributing to the stock's decline. The company reported a 9% year-on-year (YoY) fall in net profit, down to ₹496 crore. However, revenue saw a slight uptick, rising by 3.1% to ₹7,176 crore compared to ₹6,961 crore in Q2FY24. Despite the rise in revenue, operating earnings (EBITDA) fell by 1.2%, amounting to ₹1,207.3 crore. This decline was also reflected in EBITDA margins, which contracted from 17.6% in the previous year to 16.8%.

Reasons behind the decline

Several factors contributed to the underperformance in Q2. A reduction in thermal power generation, mainly due to a decline in merchant power sales, impacted profits. This was linked to lower electricity demand caused by the extended monsoon season, which affected the quarter’s figures compared to the same period last year. Furthermore, the renewable energy segment also saw a decrease in contribution, owing to lower plant load factors (PLF) due to weather conditions and the ongoing stabilisation of solar projects.

Torrent Power's project pipeline and prospects

Despite the quarterly setbacks, Torrent Power remains optimistic about its long-term prospects. The company has an extensive renewable energy pipeline, with 3,225MW of capacity planned. The total expected project cost is ₹19,300 crore. Additionally, the company is pursuing 8.4GW of pumped storage projects across Maharashtra and Uttar Pradesh, while a green hydrogen project in Uttar Pradesh is nearing completion.

Analysts' outlook on Torrent Power

Industry analysts have revised their target price for Torrent Power to ₹1,324, citing its strong project pipeline and future ventures into green hydrogen and pumped storage. However, analysts continue to maintain a ‘Sell’ rating, given the stock’s high valuation despite its potential.

Key takeaways

  1. Torrent Power shares dropped 5%, hitting ₹1,507, marking a 5-month low.

  2. The stock has fallen 26% from its 52-week high of ₹2,037.

  3. The company reported a 9% YoY drop in net profit for Q2FY25.

  4. Revenue rose by 3.1% to ₹7,176 crore.

  5. Torrent Power has 3,225MW of renewable energy capacity in the pipeline, which is estimated to cost ₹19,300 crore.

  6. Analysts have raised the target price to ₹1,324 but retain a 'Sell' rating due to the high valuation.

  7. Despite short-term challenges, the outlook for Torrent Power remains positive, with several major projects underway.