Tata Power gains 3% post Q3: Analysts split on outlook; should you 'Buy'?

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Tata Power share price surged 3.5 per cent at Rs 375 a piece on the BSE in Wednesday’s intraday trade after Tata Power reported a consolidated net profit of Rs 1,188 crore for the third quarter of the financial year 2024-25 (Q3FY25). 

 

The company’s net profit grew a 10 per cent year-on-year (Y-o-Y) growth compared to Rs 1,076 crore in the same quarter last year. The company's consolidated revenue saw a 3 per cent increase, reaching Rs 15,793 crore, up from Rs 15,294 crore in the previous year. Meanwhile, earnings before interest, taxes, depreciation, and amortisation (Ebitda) rose 7 per cent to Rs 3,481 crore, compared to Rs 3,250 crore in the corresponding period.

 

According to analysts at Nuvama Institutional Equites, adjusting for one-off in Q3FY25 and Q3FY24, Tata Power's net profits saw a 9 per cent Y-o-Y growth, falling short of their estimates. Meanwhile, the company’s renewable business PAT grew 60 per cent Y-o-Y  led by manufacturing income from the newly built 4.3GW solar module and cell plant. 

 

On the revenue front, however, the renewable energy (RE) segment fell 15 per cent Y-o-Y, but the transmission & distribution segment rose 5 per cent Y-o-Y, while power generation revenues were largely flat on a Y-o-Y basis, analysts at Elara Capital noted. 

 

“We remain optimistic on Tata Power's long-term RE transition (65 per cent mix by FY28), solar manufacturing (50 per cent external by FY27) and optionality in solar rooftops, nuclear endeavours and potential UP Discom acquisition. While Tata Power is targeting 2.5x its FY24 PAT to Rs 100 billion by FY30, we fear most of this growth is back-ended with RE fully contributing by FY28,” Subhadip Mitra, Vikram Datwani, and CFA Vijay Bhasin Of Nuvama Institutional Equities said in a report.

 

The brokerage added that it finds risks outweighing rewards as the current market price of Tata Power stock more than bakes in these triggers, given its valuation of 23 times its FY26 price to earnings (PE) ratio. The brokerage retained its ‘Reduce’ call on the stock with a target of Rs 343 a piece.

 

International brokerage CLSA, maintained its 'Underperform' on company, with target of Rs 351 per share, according to reports. 

 

On the other hand, analysts at Elara Capital, stayed with their ‘Buy’ call on the stock but a reduced target of Rs 488 due to slower-than-anticipated capacity addition in the renewable energy segment. 

 

However, the brokerage believes that Tata Power stands to benefit from power transmission capex, power distribution reforms and green investments. As the company aims to increase its renewable energy capacity to 15GW by FY27 and has capex plans of Rs 84,200 crore in FY24-27. 

 

On similar lines, those at JM Financial also said that the company’s capex plans will boost the company’s growth throughout segments. The brokerage estimates Tata Power to report 2024-27 revenue and Ebitda CAGR of 9 per cent and  17 per cent, respectively,  maintaining ‘Buy’ with a target of Rs 456. 

 

Axis Capital also gave a “Buy” call on the stock with an unchanged target of Rs 462 per share.  At 10:52 AM; the stock price of the company was up 2.03 per cent at Rs 369.50 per share, against the BSE Sensex's fall of 0.03 per cent at 78,562.95 level.