After strong Q2, execution is key for further gains in Tata Power

Tata Power’s Q2FY25 reported results were above consensus despite challenges like low plant availability at Mundra and Odisha discom operations affected by rain. A positive development for the power major included module manufacturing hitting nearly 100 per cent capacity utilisation. The Board has approved an investment proposal for a 1GW pumped storage project (PSP).

 

The consolidated operating profit of Rs 3,740 crore in Q2FY25, was driven by ramped-up solar manufacturing and operational efficiency. Revenue was at Rs 15,690 crore (flat Y-o-Y) for Q2FY25. The adjusted net profit (APAT) was at Rs 1,070 crore, a rise of 20 per cent Y-o-Y. In H1FY25, net sales were at Rs 32,990 crore, with operating profit at Rs 7,330 crore and APAT was at Rs 1890 crore, up 7 per cent, 21 per cent and up 11 per cent Y-o-Y, respectively. The H2FY25 is expected to be much stronger with revenues climbing by 40 per cent Y-o-Y, according to some analysts, along with similar gains in operating profit and net profit. Importantly, S&P Global Ratings, ICRA and CARE, have all upgraded ratings, which will lower interest costs.

 

In H1FY25, the company installed 222 MW of rooftop solar panels. The solar EPC order book was at Rs 15,900 crore at Q2FY25-end. The green operational capacity stands at 6.4 GW with an additional 6.5 GW under construction. The transmission portfolio stands at 7,049 circuit kilometre, including 4,633 ckm commissioned and 2,416 Ckm under construction.

 

A large proportion of the current EPC order book is expected to be implemented in H2FY25 and the management has a target of Rs 11,000 crore revenue in FY27 for EPC business. The 4.3 GW module plant is operating at nearly 100 per cent utilisation, while cell operations commenced with the commissioning of a 2 GW cell production line during Q2FY25. The cell line should be fully stabilised by November 2024 after the start of production.

 

The Board has approved an investment in the 1,000 MW PSP project, with work starting in Q4FY25 and most necessary approvals for the project already received. There are Rs 440 crore merger-related charges and weaker profitability at some of the Odisha subsidiaries, leading to high stamp duty and write-off of deferred tax assets.

 

Management believes 5GW of under-construction renewable energy (RE) projects will be executed by FY26 and the yearly run rate should be 2.5GW for RE generation commissioning. The Mundra plant could not be operated in September 2024 due to a fault with the conveyor system. However, the plant is now operating at full capacity.

 

 A large proportion of the current Order Book (OB) should be implemented in H2FY25. A bulk of third-party EPC OB will be commissioned. The company will focus on group captive projects over third parties. The company aims to carry out 1 million rooftop projects in UP, Odisha, and Rajasthan, apart from other states.

 

The company will start work on recent project wins in H2FY25 while continuing to bid for projects that meet its internal IRR estimates. Tata Power aims to bundle PSP power along with solar and wind to market this to commercial customers looking for clean energy solutions. Enquiries for PSP projects are strong and by mid-2025, work on a second 1800 MW PSP project is expected to start. The Odisha network has been restored post-rainfall.

 

The stock market reacted positively to the results and analysts are generally positive with valuation targets indicating a 15-20 per cent upside.