Post healthy Q3 performance, Tata Power stock can see gains ahead

Tata Power’s earnings before interest, taxes, depreciation and amortisation (Ebitda) for the October-December quarter (Q3) of FY25 was up 38 per cent year-on-year (Y-o-Y) but slightly below consensus.

 

The rise was driven by growth in the standalone business with good plant load factors (PLFs) and some positive regulatory developments for Mundra power business. Rising contribution from the renewables, cell and module businesses also helped.

 

Profitability at the profit after tax (PAT) level was also driven by higher other income.

 

Tata Power reported consolidated Ebitda of Rs 3,350 crore in Q3FY25 (+38 per cent Y-o-Y). Revenue was Rs 15,400 crore, (+5 per cent) for Q3FY25, while reported PAT was at Rs 1,180 crore (up 10 per cent), on account of higher other income. Adjusted PAT stood at Rs 1,000 crore (+8 per cent).

 

Tata Power commissioned 865 Mw of renewable energy (RE) generation capacity in M9FY25 (nine months of FY25), versus the guidance of 2-2.5 Gw RE generation of commissioning per annum.

 

Cell business continued to ramp up, with 2 Gw commissioned in November 2024, and another 2 Gw commissioned in January 2025.

 

The company is actively exploring new opportunities for discom privatisation across India with a focus on UP with a public-private partnership (PPP) model and it is also evaluating nuclear opportunities.

 

The company had a green operational capacity of 6.7 Gw (43 per cent of total installed capacity), with an additional 10.1Gw under construction.

 

Transmission portfolio stands at 7,047 Ckm, including 4,633 Ckm commissioned and 2,414 Ckm under construction.

 

The solar EPC & group captive order book stood at Rs 13,500 crore. In Q3FY25, the company installed 134 Mw of rooftop solar, and third-party solar order book stood at Rs 820 crore. The 4.3 Gw module plant is operating at over 90 per cent utilisation. An additional 2 Gw cell line was commissioned in December 2024 and a 0.3 Gw cell line is to be commissioned in Q4FY25. The company is in a partnership with Bhutan’s Druk Green Power Corporation to develop 5,100 Mw of clean energy projects in Bhutan.

 

For M9FY25, revenue was Rs 48,300 crore and reported PAT was Rs 3,460 crore. Net debt is Rs 44,700 crore and debt-to-equity ratio is 1.1:1. Capex of Rs 12,000 crore was spent in M9FY25, with an additional Rs 10,000 crore planned for Q4FY25, for a total capex of Rs 22,000 crore for FY25.

 

In M9FY25, 865 Mw of renewable generation has been commissioned with a target of 600 Mw for commissioning in Q4FY25.

 

The plan is to add 2-2.5 Gw of RE capacity annually in FY26 and FY27. In nuclear energy, the business model and approval process are under evaluation. Regulatory approvals typically take 24 months, with construction taking 4-5 years.

 

In distribution, the stabilisation of Odisha discoms has led to improvements in billing, collection efficiency, and AT&C loss reduction.

 

Further enhancements in billing and collections are expected in Q4FY25.

 

The company has a strong third-party engineering, procurement, and construction (EPC) order book with execution to be completed within FY25, with some spill over into FY26.

 

The strategic focus is on EPC projects that do not require land acquisition. The company has an in-house EPC pipeline of over 2 Gw, prioritising group captive and utility-scale projects.

 

Tata Power is targeting 70 per cent clean energy mix by FY30 (currently at 43 per cent). The management expects peak power demand of 265-270 Gw in the summer FY25, with recent trends indicating a potential upside.

 

The Union Budget FY26 — with higher funding for PM Suryaghar (rooftop solar) and amendments to the Atomic Energy Act to allow private sector participation — is seen as a positive.

 

In valuation, investors must look at segments such as the regulated equity business and the coal business. The renewables segment (and pumped storage) must also be valued. The RE segment has much higher multiples than coal or regulated equity. Besides, there is substantial cash and investments held by the company. Overall, even with conservative assumptions, there seems to be an upside at current rates.