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WACC Analysis of Tata Power

Tata Power has a weighted average cost of capital of 8.8941% based on a cost of equity of 9.75% and cost of debt of 7.86%. Its capital structure consists of Rs. 13699.59 crores in equity and Rs. 11272.3 crores in debt. The cost of equity was calculated using a risk-free rate of 7.18%, market rate of 11.94%, and beta of 0.54. The cost of debt was calculated based on an effective tax rate of 20.51% and weighted average interest rates for various debt instruments.

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208 views2 pages

WACC Analysis of Tata Power

Tata Power has a weighted average cost of capital of 8.8941% based on a cost of equity of 9.75% and cost of debt of 7.86%. Its capital structure consists of Rs. 13699.59 crores in equity and Rs. 11272.3 crores in debt. The cost of equity was calculated using a risk-free rate of 7.18%, market rate of 11.94%, and beta of 0.54. The cost of debt was calculated based on an effective tax rate of 20.51% and weighted average interest rates for various debt instruments.

Uploaded by

ShubhamShekharSinha
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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TATA POWER COMPANY LTD

(Power Generation/Distribution | NSE Code: TATAPOWER)


INR 259.15 Author: Rammesh Thakkaar
52 Week (High - INR 262.30 & Low - INR 182.35) Report as on: 04/09/2023

WEIGHTED AVERAGE COST OF CAPITAL


CAPITAL WEIGHTS RATE WEIGHTED AVERAGE
Equity 0.5486 9.75% 0.053472
Debt 0.451 7.86% 0.03547
WACC 8.8941%

CAPITAL STRUCTURE
EQUITY ₹ crores DEBT Average Rate ₹ crores
Equity Share Capital 319.56 Unsecured Non-Convertible Debentures 9.90% 4101.8
Other Equity 13380.03 Unsecured Term Loans from Banks 9.90% 2353.32
TOTAL EQUITY 13699.59 Secured Non-Convertible Debentures 9.15% 230.44
Secured Term Loans from Banks 9.90% 4586.74
Weight of Equity 0.5486 TOTAL DEBT 11272.3
Weight of Debt 0.4514
COST OF EQUITY (Ke)
1
Rf = Risk Free Rate (10 Year G-Sec) 7.18%
Rm = Market Rate (BSE Sensex 10 Year CAGR)2 11.94%
3
B = Beta 0.54
Ke = Rf + B (Rm - Rf) 9.75%

COST OF DEBT (Kd)


Debt Type Average Rate ₹ crores Weight Avg Rate * Weight Σ (Avg Rate * Weight) 0.09885
4
Unsecured Non-Convertible Debentures 9.90% 4101.8 0.363883 0.036024432 Tax Rate 20.51%
Unsecured Term Loans from Banks 9.90% 2353.32 0.20877 0.020668247 kd = Σ (Avg Rate * Weight) * (1-T)
Secured Non-Convertible Debentures 9.15% 230.44 0.020443 0.001870538 = 7.86%
Secured Term Loans from Banks 9.90% 4586.74 0.406904 0.040283461
TOTAL 11272.3 0.098846677

1
WORKING NOTES (WN)

Working Note 1 - Risk Free Rate


Risk Free Rate (taken from RBI Website by considering 7.26% G-Sec 2033) 7.1754%

Working Note 2 - Expected Return of Market


BSE Sensex 10 Year CAGR (taken from BSE website - Sensex historical data)

Beginning Price (2013) 21170.68


Ending Price (2023) 65387.16
Market Rate (Rm) = [(Ending Price / Beginning Price)(1/Number of Years)]-1 11.94%

Working Note 3 - Calculation of Beta


Beta is calculated by using the slope function; considering known x variables to be logarithmic returns of Daily BSE Sensex Closing Price for a period of
1 Year and known y variables to be Daily Weighted Average Price of Tata Power for a period of 1 Year.

Working Note 4 - Calculation of Effective Tax Rate


Income Tax Expense 843.07
Profit Before Tax (PBT) 4110.97
Effective Tax Rate = Income Tax Expense / PBT 20.51%

Note:
1. All the latest company specific financial data in this report is taken from Annual Report (2022-23) of Tata Power from official website of Tata Power.
2. All the historic data for both company (Tata Power) and index (BSE Sensex) is taken from BSE historical archives section on official website of BSE.
3. Calculation of Beta is done by the author himself by means of Statistical Tools and the value is not taken from any third party sources.
4. Average rate of debt is considered for all kind of debt.

Disclaimer: This report is meant for educational purposes only. The author of this report is not liable for any losses due to actions taken on basis of this report.

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