Torrent Power analysis: Energy and power company Torrent Power Limited (TPL) encountered a challenging December quarter marked by stagnant revenues and a significant drop in profit after tax (PAT), analysts said. 

Despite witnessing operational improvements, the company struggled with escalating operating expenses, leading to a 47 per cent year-on-year decline in profit before tax (PBT).

In the December quarter (Q3FY24), the company reported flat revenues of Rs 6,366 crore, reflecting a marginal 1 per cent decrease compared to the previous year. 

The decline in PBT stemmed primarily from reduced gains in gas trading and merchant power sales, which contrasted sharply with the corresponding period's figures, brokerage firm Geojit said in a note.

Despite notable achievements such as higher wind capacity availability and improved return on equity (ROE) in various segments, including renewables and distribution, Torrent Power faced challenges from increased depreciation and finance costs. Consequently, PAT plummeted by 46 per cent year-on-year to Rs. 374 crore.

The operational front showcased some positive trends, including a 5 per cent increase in the distributions segment and improved Plant Load Factors (PLFs) for both thermal and renewable capacities. 

However, the distribution sector experienced losses, particularly in Ahmedabad, where losses surged by 351 basis points year-on-year.

The company anticipates heightened power demand in the upcoming summer months, presenting opportunities in the merchant market, the brokerage firm highlighted. 

To capitalise on this, the company secured additional cargo tie-ups to meet demand in the fourth quarter of financial year 2024 (Q4FY24) and first quarter of financial year 2025 (Q1FY25). Moreover, the softening of natural gas prices offers potential cost reductions for thermal generation.

Despite these strategic moves, concerns loom over the company's valuation, execution risks in renewable capacity expansions, and the diminishing prospects in LNG trading. 

As a result, Geojit analysts advise caution, maintaining a sell rating for the stock at target price of Rs. 1,038.

While Torrent Power Ltd. navigates through operational hurdles and seeks to capitalise on market opportunities, its profitability remains under pressure amidst broader industry challenges and valuation uncertainties.

As of 9:18 am, shares of Torrent Power were trading 1.08 per cent to Rs 1,138.05 per share.