Green investments set to add spark to Tata Power, but challenges remain

This underlines Tata Power's ambitions to lead India's renewable energy or RE transition

Tata Power’s share saw a sharp upturn after commercial production for 2 Gw of solar cells was rolled out at the manufacturing facility of TP Solar in Tirunelveli (Tamil Nadu).

TP Solar is a subsidiary of Tata Power Renewable Energy, which in turn, is a subsidiary of Tata Power.

Tirunelveli hosts India’s largest single-location solar cell and module plant.

Indigenous production of solar cells enhances Tata Power's ability to supply high-quality, domestically produced solar components. An additional 2Gw capacity will start in the next 4-6 weeks.

The company has committed almost Rs 4,300 crore to the facility. In addition to Tirunelveli, Tata Power also operates a facility (established in 1992) in Bengaluru. This facility has a capacity of 682 Mw for solar modules and 530 Mw for solar cells.

This underlines Tata Power's ambitions to lead India's renewable energy (RE) transition. In solar rooftop and utility segments, it holds 20 per cent market share. Tata Power is targeting to increase the RE portfolio from 41 per cent to 70 per cent by 2030.

It is eyeing RE capacity of 15 Gw by FY27 with capex plans of Rs 60,000 crore in FY24-27. The company sees a big opportunity in solar EPC.

The newly-launched Pradhan Mantri Suryoday Yojana has the potential to drive 25-30 Gw of new solar capacity in 3-4 years.

In Q1 FY25, revenue of Tata Power rose 14 per cent year-on-year (Y-o-Y) (9 per cent quarter-on-quarter or Q-o-Q) to Rs 17,300 crore.

Higher sales for discoms spiked plant load factor and plant availability in Mundra drove Q1 earnings.

Revenue from generation increased 8 per cent Y-o-Y to Rs 5,200 crore, transmission and distribution increased 13 per cent to Rs 10,400 crore and renewables was up 14 per cent Y-o-Y to Rs 2,400 crore.

Solar EPC execution picked up, reporting 46 per cent Y-o-Y rise to Rs 2,200 crore. 

EPC revenues could continue to grow quickly as benign module prices support execution for the utility order book.

Operating profit rose 22 per cent Y-o-Y to Rs 3,600 crore. Operating profit margin went up to 20.7 per cent in Q1 FY25 from 19.3 per cent in Q1 FY24.

Net profit rose 4.2 per cent Y-o-Y to Rs 1,200 crore in Q1.

Adjusted profit increased 31 per cent Y-o-Y in Q1 FY25 on an exceptional item of Rs 235 crore in Q1 FY24. This was due to dilution gain on Tata Projects.

The order book for utility-scale EPC was at 2,613 Mw (worth Rs 13,000 crore).

New orders of 225 Mw (worth Rs 930 crore) in the solar EPC business were received in Q1 FY25.

Captive order book for the Tata group was Rs 2,100 crore with third-party rooftop order at Rs 570 crore.

Tata Power installed 111 Mw of third-party rooftop capacity in Q1 and has over 5Gw of utility-scale solar projects and 3Gw of third-party rooftop projects under implementation.

The Mundra plant reported availability of 81 per cent (up from 54 per cent Y-o-Y) and utilisation of 71 per cent (vs 41 per cent), operating on cost plus under emergency clauses.

Tata Power also won a bid for a transmission project worth Rs 2,500 crore, pushing the transmission portfolio to Rs 4,600 crore. It is looking to pick a 40 per cent stake in a 600 Mw hydro project in Nepal.

Overall, power demand surged 11 per cent Y-o-Y in Q1 FY25. The management believes this trend will last at least 2-3 years.

Execution delays and lower growth of power demand would be key risks but market sentiment and analysts’ opinion seem to be positive.