Long Term Buy Call For Torrent Power Ltd: StocksIdea.Com

Torrent Power LtdTorrent Power (TEL) was incorporated on Apr. 29, 2004 as Torrent Power Trading. The name of the company was changed to Torrent Power Limited on Jan. 25, 2006. Consequent to the conversion of the company into a public sector company on Feb. 8, 2006, the company came to be called as TEL. It came into existence after the merger of Torrent Power AEC, Torrent Power SEC and Torrent Power Generation. Gujarat based TEL is a part of Rs. 45 billion Torrent Group and is engaged in generation, transmission and distribution of power. Torrents venture into power sector began with the acquisitions of utilities, the Surat Electricity Company and the Ahmedabad Electricity Company. Torrent turned them into first rate power utilities in terms of operational efficiencies and reliability of power supply. Torrent has a generation capacity of 1600 MW and distributes electricity to Ahmedabad, Gandhinagar and Surat. The company also bagged the Gold Shield for two consecutive years, 2004-05 and 2005-06, for outstanding performance in power distribution by the Government of India. Distribution franchise business is one area which Torrent Power has been aggressively pursuing as part of its current expansion plan.

The company is also evaluating the establishment of their own wind and solar power generation. In March 2009, Torrent Energy Ltd became a subsidiary of the company, which is formed for setting up a 500 MW gas based combined cycle power plant in Dahej SEZ. The company signed Fuel Supply Agreement (FSA) with South Eastern Coalfields Ltd, a subsidiary of Coal India Ltd, for meeting requirements of their coal based generating station at Sabarmati. The FSA is effective for a period of 5 years from April 1, 2009. In May 2009, the Uttar Pradesh Power Corporation Ltd (UPPCL) has entered into an agreement with the company for power distribution in Kanpur and Agra. During the year 2009-10, the company signed the shareholders' agreement with Gujarat Power Corporation Ltd for implementation of the 1000+ MW Coal-Based Power Project at Pipavav, Dist. Amreli, Gujarat. TPL has been ranked 70th in the Business & Economy magazine's listing of 100 Most Profitable Companies in India, based on profit earned in 2010-2011.

Products & Services—

Torrent Power Limited (TPL), power utility of the Torrent Group, is an integrated utility having interests in power generation, transmission and distribution. It has a generation capacity of 1647.5 MW and distributes power to more than 3 million customers annually in Ahmedabad, Gandhinagar, Surat, Bhiwandi and Agra. The company has three subsidiary companies namely, Torrent Power Grid Limited, Torrent Energy Limited and Torrent Pipavav Generation Limited.

Company is entering into the renewable energy sector with wind and solar projects of 50 MW each which would be operational by December 2011. The company has already tied up with Enercon for setting up 50 MW wind power project and signed a power purchase agreement with a solar power firm for 50 MW early this year. TPL's tie-ups are expected to attract investments to the tune of 1,000 crore for wind and solar power projects in Gujarat.

Last year, Torrent Power has signed turnkey EPC contracts with Siemens AG, Germany and Siemens, India. The contracts are for UNOSUGEN (the 382.5 MW gas based combined cycle power project - the capacity expansion at the existing SUGEN mega power project) and for the Greenfield DGEN project at Dahej SEZ (the 1200 MW gas based combined cycle power project). While UNOSUGEN is being established under the aegis of Torrent Power, DGEN is being established under the aegis of Torrent Energy, the wholly-owned subsidiary of the company. Thus, approximately 1600 MW power generation capacity would be added in the Torrent fold within the next three years.

Recently, Torrent Power and Gujarat Power Corporation (GPCL) approved a Share Holders Agreement (SHA) for developing a 1000+ MW coal based power project at Amreli in the state. This project will attract an investment of about Rs 45 billion in the state and power generated will be utilized in the state. It will be implemented by March, 2012. For implementing the project, GPCL has acquired about 267.38 hectares of private land and got transferred about 40.31 hectares of government land at village Rampara -2 and Uchaiya of Rajula taluka in Amreli district.

Valuation—

Torrent Power is planning to expand its power generation and distribution capacity rapidly in next 2-3 years. We expect company’s earnings to grow at a CAGR of 19 % for next 3 years. At current market price of 220 rs, stock is trading at attractive valuation of 7.2 P/E multiple of its FY2013 estimated earnings. We recommend investors to buy “Torrent Power Ltd” with Short term, medium to long term investment horizon.