Initiating coverage with Overweight rating and price target of Rs 643:

Tata Power is one of the largest integrated power companies in India’s private sector. The company has installed generation capacity of 2,323 MW, it has set up a transmission line together with PowerGrid, and distributes electricity in the Mumbai and Delhi circles. The company plans to add 6,310 MW in generation capacity over the next five to six years. This includes the 4,000 MW Mundra UMPP.

Possibility of liquidation of group investments would be key trigger for stock:

The company has investments in various Tata group companies, especially telecom companies. We estimate Tata Power will require substantial funds to meet its US$6-7bn capex program. If the company were to announce that it would liquidate these investments to meet the equity portion of its investments, this would be positive for the stock, in our view. However, if the company decides to raise fresh equity, this could dampen investor sentiment.

Working on an aggressive strategy:

The company appears to be making an effort to increase its presence in the power sector. The government’s thrust to increase private participation in the sector could present increasing opportunities for the company. The UMPP win, acquisition of Indonesian coal mines and a presence in the transmission and distribution segments seem to reflect a well thought-through strategy.

Initiating coverage with Overweight rating: