Tata Power shares lose steam in H2, still up 61% from 52-week low; what's next?

Shares of Tata Power Company have lost steam in the second half of this year. The Tata Group stock rose 32.66% from Rs 332.05 on December 29, 2023 to Rs 440.50 on June 28 this year. However in the second half or H2-2024, the stock is down 5.7% till date. Despite the recent weakness on the Tata Power counter, it has gained 61% from its 52-week low of Rs 265.10 reached on November 30, 2023. 

In the current session, Tata Power shares slipped 0.43% to Rs 416 against the previous close of Rs 417.80 on BSE. The stock has gained 53.59% in a year and risen 26% in 2024. The stock has been highly volatile with its one year beta at 1.6. 

Market cap of Tata Power fell to Rs 1.32 lakh crore on BSE. A total of 4.91 lakh shares of the firm changed hands amounting to a turnover of Rs 20.47 crore. Shares of Tata Power rose to a 52-week high of Rs 494.85 on September 27, 2024 

In terms of technicals, the relative strength index (RSI) of Tata Power stock stands at 45.2, signaling the stock is trading neither in the overbought nor in the oversold zone. Tata Power shares are trading lower than the 20 day, 50 day, 100 day, 200 day but higher than the 5 day and 10 day moving averages.

Choice Broking in its Diwali Picks 2024 report listed Tata Power as its top pick. 

"Tata Power is approaching a key demand zone, which could present a buying opportunity if signs of reversal emerge. A "buy on dips" strategy is recommended, with entry points up to 400 levels, targeting an upside range of Rs 500–520. This approach offers potential for gains, provided the stock reverses from its current consolidation phase," said the brokerage. 

JM Financial has assigned a 'Buy' rating on Tata Power with a target price of Rs 501. The brokerage noted that the captive power requirement within the Tata Group is at least 10GW. The company is focusing more on RE-RTC projects with equity IRR returns of 17-18 per cent. The government is expected to soon make an announcement on nuclear power. The company is in talks to set up a small modular reactor, JM Financial said.

Geojit Financial has assigned a conservative target of Rs 460 on the Tata Power stock. 

"Robust capital expenditure plan, cost reduction measures, strategic acquisition and commissioning additional projects in Q4FY25 are expected to drive the long term performance. Therefore, we upgrade our rating on the stock to BUY, with a revised target price of Rs 460, based on 12x FY26E EV/EBITDA," said Geojit. 

Brokerage Nuvama has retained its 'Reduce' rating and suggested a target price of  Rs 346 for Tata Power Company. 

"Despite assuming PAT targets as met on time, we find risks outweighing rewards as the CMP more than bakes in these triggers, given lofty valuation of 25x FY26E PE and 3.4x FY26E P/BV. Furthermore, profit growth may well be visible only when all RE additions start contributing fully to earnings by FY28," the brokerage said.

The Tata Group firm reported its highest ever quarterly profit of Rs 1,533 crore, rising 51% year-on-year from Rs 1,017 crore in Q2 of the previous fiscal. 

However, revenue from operations declined 1% year-on-year to Rs 15,247 crore. Consolidated EBITDA climbed 23% to Rs 3,808 crore in Q2 on the back of ramped up solar manufacturing, favorable regulatory development in distribution, and operational efficiency across businesses.