The brokerage house, Nuvama Institutional Equities, cut its target price for Tata Power by 22% to Rs 343 from Rs 440. It maintained the ‘Reduce’ call on Tata Power as it sees that the company’s “growth is back-ended and priced in.”
Tata Power is expecting net profit growth of 2.5 times to Rs 10,000 crore by FY30. However, Nuvama said that most of this growth is back-ended with renewable energy fully contributing by FY28. “We find risks outweighing rewards as the CMP more than bakes in these triggers, given a valuation of 23x FY26E PE and 2.9x FY26E P/BV,” said Nuvama.
That said, the brokerage house is optimistic about Tata Power over the long term in renewable energy transition, solar manufacturing and optionality of solar rooftops, and nuclear and potential UP Discom acquisition.
Tata Powers RE business contribution
Tata Power’s renewable energy business reported a jump of 60% year-on-year net profit growth to Rs 2,100 crore. The growth was led by the manufacturing income of the newly built 4.3GW solar module and cell plant (eliminated at consolidation).
The Tata Group company reported a consolidated net profit of Rs 1,030 crore in the third quarter of the current financial year. However, after adjusting for the one-time regulatory income the net profit stood at Rs 700 crore, missing estimates. “Adjusted PAT grew 9% YoY since Q3FY24 also had one-off income from ITPC dividend. Solar module + cell manufacturing ramped up (though knocked off in consolidated PAT), as it is mostly used in captive solar plants, aiding IPP segment IRRs.”
Nuvama’s investment theme
Nuvama’s investment theme for Tata Power’s growth led by the shift towards renewable energy. The company’s management has shifted focus towards the completion of current projects by FY26. It is leaning towards RE and transmission & distribution (T&D) for future growth while keeping the debt-to-equity ratio under check at 1.5x (worst case 2x). “Renewable earnings are likely to have a lion’s share of overall profits by FY27. Given the tricky power demand-supply scenario, CGPL resolution at close to Sec-11 tariffs is a key trigger, while falling coal prices remain a drag on near-term growth,” said Nuvama.
Tata Power in Q3
The company reported an 8% growth YoY net profit in Q3 FY25 at Rs Rs 1,031 crore compared to Rs 953 crore reported in the same quarter a year ago.
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