Tata Power stock: Nuvama says valuations lofty, shares stock price target

Tata Power reported an in-line June quarter profit growth, led by 31 per cent rise in renewable businesses after the commencement of newly built 4.3GW solar module and cell manufacturing unit. The print was aided by 55 per cent T&D business growth, offsetting a large fall in coal profits and estimated UMPP loss.

Nuvama Institutional said Tata Power can achieve its target of doubling FY23 PAT only by FY27–28, post completion of its 15GW RE (renewable energy) target and scale-up of captive solar manufacturing plant (4.3GW).

For now, it felt these triggers are more than factored in the prevailing market price and, thus, Tata Power valuations are lofty valuation at 25 times FY26 PE and 3.4 times FY26 P/BV. Profit growth will be visible only when all RE additions start contributing fully to earnings by FY27–28E, it noted.

Shares of Tata Power are up 32.38 per cent in 2024 so far and 87.75 per cent in the past one year.

"We include the optionality of new projects—Bhutan Hydro Project and transmission TBCB orders-wins—and roll over the valuation to FY27E and yet find limited upside even in our bull case (exhibit 3) of CGPL profits u/s 11, RE valued at Rs 60,000 crore (150 per cent of deal value) and coal price of $90. We retain ‘REDUCE’ with an SotP-based target price of Rs 346," it said.

Tata Power Company reported a 4.20 per cent year-on-year (YoY) rise in profit at Rs 1,188.63 crore for the June quarter compared with Rs 1,140.97 crore in the same quarter last year. Excluding exceptional items, profit was up 31 per cent YoY.

Revenue for the quarter rose12 per cent YoY to a record high of Rs 16,810 crore. Ebitda was up 11 per cent YoY at Rs 3,350 crore.

"A solid order pipeline is propelling this all-round business growth. The Company has a clean and green installed capacity of 6.1 GW as of Q1FY25, accounting for 41 per cent of the capacity, with another 5.3 GW under execution. The combined order pipeline for utility-scale EPC and solar rooftop, including group captive, is Rs 15,500 crore," the Tata group firm said in an exchange filing.

Tata Power said it is well poised to garner 20 per cent market share in the residential rooftop segment on the back of its new solar manufacturing facility and strong pan-India channel partner network.

"We include the optionality of: i) 600MW Bhutan Hydro Project, wherein Tata Power acquired a 40% stake; and ii) transmission TBCB orders wins and rolling forward the valuation to FY27E. Tata Power currently has installed RE capacity of 6.1GW, with another 5.3GW under construction and targeting 15GW by FY27. The combined order pipeline for utility-scale EPC and solar rooftop, including group captive, is Rs 15,500 crore," Nuvama said.