Tata Power CFO sees interest rates peaking, says raising debt won't be a challenge

Sanjeev Churiwala, Chief Financial Officer at Tata Power, sees interest rates peaking now and does not foresee any major challenge for his company to raise money going forward.

“Liquidity in the market is tightening. If you look at the US, inflation is coming down, the US Federal Reserve seems to be positive about what it is going to see. Our RBI has also been holding the interest rates quite firm. We now think we are almost at the peak of the interest rates. They may go up by some basis points but I sense that we are already peaking,” Churiwala told reporters.

The US central bank kept the target range for the federal funds rate at its 22-year high of 5.25%-5.5% for a second consecutive time in November. India’s central bank on similar lines kept benchmark repo rates at 6.5% for the fourth consecutive meeting in October.

What happens is when the liquidity tightens in the market, the availability of good debt becomes difficult but that is a more competitive advantage for us because we don’t have an issue in raising debt, and that too at a competitive rate. We are very well positioned.Tata Power CFO Sanjeev Churiwala

Tata Power's cost of funds stands at about 8% as of September end and the company has seen a comparatively smaller rise in its funding cost compared to the rise in repo rate. While the repo rate in India has seen 250 basis points increase between March 2022 and September 2023, Tata Power's cost of funds rose less than 100 basis points during the same period.

Capex plans

Tata Power has big capital expansion plans of Rs 60,000 crore over the four years. The private power producer expects to deploy 45% of this capital on renewables, 20% on the transmission and distribution business, 17% on optional growth in Transmission and Distribution, and about 15% on pumped hydro projects.

It aims at a capacity addition target of 500 GW by 2030. As of October 2023, its installed capacity stands at 179GW and the company has 97 GW of projects under implementation. To reach the 500 GW target, Tata Power would be required to auction 224 GW worth of projects.

Tata Power aims to double its revenue and net profit over the next four years. It reported revenue of Rs 56,000 crore in FY23 and a net profit of Rs 3,810 crore.

The good part is we should be able to go really fast on this (Rs 60,000 crore) capex, and deliver on this commitment. Most of the capex is already in the pipeline and has come through bidding.Tata Power CFO Sanjeev Churiwala

Pumped hydro projects

Tata Power earlier this week announced that it will start work on commissioning 2,800 MW pumped hydro projects in Maharashtra by the middle of the next year. These are two brownfield pumped hydro projects, and the capex outlay is Rs 13,000 crore. One is of 1,000 MW capacity at Bhivpuri in Raigad district and the second is of 1,800 MW capacity at Shirawata in Pune district.

While the Bhivpuri project is expected to be completed in 36 months (FY27 mid), the Shirawata project where the company may require some land approvals would require 48 months (FY28 mid), Tata Power CEO and MD Praveer Sinha told reporters in a press conference.

Tata Power plans to fund the pumped hydro projects in the ratio of 70:30 debt to equity.

The company's debt-to-equity ratio as of September 2023-end stood at 1:1 which for an infrastructure company is generally considered very healthy.