Torrent Power is one of the conventional, focused utility companies in the Indian power sector. While investors may find many hybrid variants of the original utility model in the form of Adani Power, JSW Energy, Tata Power, GMR Infra and so on, Torrent Power is involved in end-to-end power supply in Ahmedabad and Surat. The going has been tough for the company in the past year with uncertainties related to resource availability for its major expansions and rough weather in the Agra circle, which it took over in 2010. This is reflected in the gradual share price decline and the fall in its profitability from 2011 to 2013.
However, we believe in the DNA of the company, its understanding of the business and its track record in turnarounds and successful execution. We expect Torrent Power to clock 25% earnings CAGR over FY13-15. This, in turn, will have a rub-off effect on its return on equity and lead to a subsequent multiple re-rating. We would like to bet on the success of its gas gambit. Torrent Power also enjoys a strong valuation floor because its existing businesses churn out a lot of cash. We see an opportunity for doubling of the share price within three years, given the market potential and the company’s current positioning.
Part of the $5-billion Torrent Group, the power business came to life with the acquisition of the erstwhile Ahmedabad Electricity Co. (AEC) and Surat Electricity Co. (SEC) in 1997. This made it the sole distributor of electricity in Ahmedabad, Gandhinagar and Surat. It turned around the operations and reduced aggregate technical and commercial (AT&C) losses by focusing on better quality of service, impro