Tata Power Selling Renewable Stake At A 50% Premium

Tata Power Co. has agreed to sell stake in its renewable business to a consortium led by the U.S.-based BlackRock Real Assets at a premium to the prevailing industry valuations.

The consortium, also comprising Saudi sovereign fund Mubadala, will invest Rs 4,000 crore in Tata Power Renewable Energy Ltd. via compulsorily convertible instruments for a 10.53% stake, according to a company statement. That values the renewable business at Rs 34,000 crore. Parent company Tata Power’s market capitalisation is Rs 87,249 crore.

Tata Power’s renewable business reported earnings before interest, tax, depreciation and amortisation of Rs 1,900 crore in the nine months through December. That’s on a capacity of 2.9 gigawatts. It will end March with a capacity of 3.3 gigawatts.

The company is expected to add 1.6 GW in the next one year, according to Praveer Sinha, chief executive officer at Tata Power.

Going by that, full-year Ebitda works out to Rs 3,400 crore if the renewable business maintains the operating income level of April-December 2021. The unit accounts for a quarter of Tata Power’s consolidated Ebitda.

The deal values the renewable unit at Rs 34,000 crore. With a debt of Rs 16,000 crore disclosed by the company, the enterprise value works out to Rs 50,000 crore. It means that Tata Power is selling stake at 15 times the EV-to-Ebidta ratio, a 50% premium to the 8-10 times prevailing in the domestic renewable power sector.

Tata Power will see the first round of capital infusion by June 2022 and the remaining funds will be infused by the end of the ongoing calendar year, the company said. The amount of the final shareholding of the consortium may vary.

"The pre-money base equity valuation is Rs 34,000 crore and subject to adjustments based on the fiscal 2023 Ebitda,” Sinha said in response to BloombergQuint’s query in the press conference, after announcing the deal. “The final shareholding of Blackstone SPV in the renewables platform can range from 9.76% to 11.43%.”

The transaction is good enough for Tata Power Renewables' current capital needs, he said.