Will the acquisition of the BP stake fuel Tata Power's revenues?

Tata Power has announced that it will purchase a 51% stake in Tata BP Solar. This announcement comes after BP decided to exit its international solar business due to falling profitability. Tata Power, however, will continue to access certain BP technologies until 2013. Tata Power holds 33.21 lakh shares in Tata BP solar with face value of Rs 100. The valuation of the shares has not been done, and hence, the financial information is not available.

In last 10 years, the revenues of Tata BP Solar have gone up from Rs 1.6 cr, to Rs 900 cr. In FY11, the company reported revenues of Rs 906 cr while its net profits remained at Rs 12.5 cr. It should also be noted that the contribution of Tata BP Solar to the topline of Tata Power has been about 1%, while the PAT level contribution has been 0.5%. Even though the company will gain of 100% control of Tata BP Solar, its revenue contribution may not go up substantially. This is because the company is adding large capacities in next 2 years, due to which the solar contribution may drop below 1%. Hence, we don’t see any significant impact of the deal on Tata Power’s revenues as well as its earnings.

Tata BP Solar has 4 manufacturing facilities in India. It has an installed capacity of 84 MW in solar cell manufacturing and 125 MW in solar module manufacturing. The company also exports its products to Europe and US.

The global solar business faces competition from low-cost Chinese solar manufacturers, who have high volume solar capacities. Due to the current economic environment, the demand for the solar products has gone down, and hence, the companies are facing margin pressures. Even though the demand in India will pick up due to the government’s boost for renewable energies, new companies entering the solar market will increase the competition. In sum, we, at DSIJ, don’t see any significant impact of the solar business on the revenues of Tata Power.