Tata Power consistently meets guidance, growth inspires confidence

On its Investor Day on December 6, Tata Power clarified its five-year strategy. Tata Power wants to be an end-to-end power solutions company with a presence across the energy chain from generation to distribution to trading, and from solar manufacturing to solar utility at scale and rooftop EPC (engineering, procurement, and construction).

 

This includes a capex of Rs 1.5 trillion, 23 gigawatt (Gw) green capacity (from 20GW earlier) and a revenue target of Rs 1 trillion and a profit target of two times or Rs 10,000 crore by FY30. The target for renewable energy (RE) capacity is 15Gw by FY27, including 5.4Gw of existing renewables, and a contracted capacity of 4.5Gw. The granular details for T&D (transmission & distribution), cell & module manufacturing, and RE generation, as provided at the investors’ meet, help enhance visibility.

 

The revenue target of Rs 1 trillion by FY30 (earlier target of Rs 1 trillion by FY27) versus turnover of Rs 61,500 crore in FY24. The Ebitda target of Rs 30,000 crore by FY30 is versus an earlier target of Rs 20,000 crore by FY27, (Ebitda was Rs 12,700 crore in FY24) and PAT target of Rs 10,000 crore by FY30 (earlier target of Rs 7,600 crore by FY27). Tata Power ended FY24 with a PAT of Rs 4,100 crore. About 70 per cent of current revenue comes from regulated businesses (where fuel cost is pass-through). Mundra (4.2Gw), which operates on imported coal has been operating under Section 11 provisions and paid regulated tariff on a cost-plus basis. It may seek long-term PPAs (power purchase agreements) with the discoms it is serving.

 

Tata Power Renewable Energy (Tata Power holds an 89 per cent stake) has a green portfolio of 10Gw, with 5.4Gw operational and under construction capacity of 4.5Gw. It is also pushing hydro and pumped storage (PSP). A phased commissioning of 5.6Gw is planned between Q4FY25 and Q2FY27, with progress in land acquisition, PPA signings, and transmission connectivity. Solar rooftop installations are projected to report a 36 per cent CAGR (compound annual growth rate) over FY24-FY30. 

 

By FY30, the company expects the share of renewables in PAT to rise to 50 per cent (FY24: 21 per cent), while the share of conventional generation and coal, (now 44 per cent of PAT), will decline to 11 per cent.  

 

The capex of Rs 1.46 trillion in the next five years is 3 times the capex of the last five years. Capex for FY26-27 was raised to Rs 25,000-26,000 crore (from Rs 23,000 crore). The Commercial Operation Dates (COD) for 2.8 Gw of pumped hydro has been deferred by 6-12 months. The operational green capacity target for 2030 is 23Gw (from 20Gw prior). The under-construction pipeline has expanded to 10Gw (from 3.7Gw earlier). The land, PPA, and transmission connectivity is good.

 

Cell and module production will ramp up to 4Gw by FY26 (1/1.8Gw in H2FY25 for cell/module). The pumped storage/hydro-power projects at 1GW Bhivpuri PSP and 1.8Gw Shirwata PSP start in CY25. Bhivpuri PSP has a COD of mid-2028, requiring Rs 5,660 crore capex. The Shirwata PSP has a capex of Rs 7,850 crore. There is additional hydro potential in Bhutan of up to 15GW (a 5.1Gw MoU is signed with Druk Green Power). Hydro capacity will target 5Gw by 2031, with projects in Bhutan and India.

 

In T&D, capacity will hit 10,500 cKm by FY30 (from 4,633 cKm now), and Odisha regulated equity will rise 94 per cent by FY30. T&D requires a capex of Rs 12,350 crore. In distribution, Tata Power aims to expand the customer base to 40 million by FY30 (from 12.5 million now). There are discussions with Rajasthan, UP, Assam, Andhra Pradesh, and Andaman & Nicobar for distribution.

 

Tata Power has consistently met guidance. Profitability till FY30 will be driven by RE, T&D, and hydro. The company is divesting non-core assets valued at around $1 billion. The valuation must be done sum-of-the-parts (SoTP) across various business units, including the regulated business, the coal segment, RE, and pumped hydro.

 

Most analysts are positive. According to Bloomberg, 7 of the 8 analysts polled in the past three days (post investors’ meet) are bullish, while one has a ‘sell’ rating. Their average one-year target price is Rs 500.50.