Tata Power shares in consolidation mode, should you buy on dips?

Shares of Tata Power Company Ltd are consolidating in a range after falling from their historical peak. Tata Power share hit a record high of Rs 494.85 on September 27, 2024. Since then, the stock has lost 11.5%. It has been trading within a narrow range of Rs 441.30 to Rs 436.60 since then. On the other hand, the stock has gained 89.19% from its 52 week low of Rs 230.75 reached on October 26 last year.  Amid the rally, the stock has also been highly volatile during the same period. Its one year beta stands at 1.5. 

Choice Broking in its Diwali Picks 2024 report has 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. 

Another brokerage Motilal Oswal is bullish on the prospects of the stock. It has initiated coverage on the company, naming it a top pick in the Indian power sector. The brokerage set a target price of Rs 530, with a 'buy' rating. 

Tata Power's diversified operations and scalability are key growth drivers for the Tata Group firm. "The company is undergoing a multi-year business transformation, with plans to allocate 45% of its capital expenditure from fiscal 2023 to fiscal 2027 to renewable energy projects. This strategic shift is expected to increase the share of core earnings from 40% to 90% over the same period," according to the note by Motilal Oswal.

Brokerage Nomura India has a target price of Rs 560 for Tata Power. Nomura expects outlook for Tata Power to be robust as the company aims to deliver a significant EBITDA CAGR over FY24-27.

The brokerage said Tata Power is likely to perform robustly on its EPC business, aided by a growing order book. Currently, the order book stands at Rs 15,700 crore. The power sector firm is also seen scaling up its recently commissioned 4.3GW cell-to-module facility. Tata Power could see a sharp jump in profitability from the Odisha DISCOM business, said Nomura India.