Motilal Oswal Research Report: Tata Power

Key Highlights

• Tata Power's (TPWR) finalization of the Supplemental Power Purchase Agreement (SPPA) with Gujarat is a significant positive development.
• Adoption of SPPA by all states could reduce losses at Mundra by 75%, from INR17-18 billion per annum, leading to a 4.5-5.5% upward earnings revision to our FY27/28 PAT estimates.
• Current estimates factor in an annual net loss of INR7 billion at Mundra.

Earnings Upside

Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data

• TPWR's Indonesian coal business could provide an additional upside of 18% (annualized) to FY27 net profit for every USD10/t of additional realizations, driven by higher coal prices amid the Iran-Israel conflict.
• This upside is contingent on higher coal prices and could lead to significant earnings growth.

Growth Drivers

• TPWR's continued strong performance in the Odisha and Delhi distribution businesses.
• Growth in the rooftop solar segment.
• Backward integration through a planned 10GW ingot/wafer manufacturing capacity.
• Emerging distribution opportunities, such as the Uttar Pradesh discom privatization.
• Increased focus on expanding its own renewable energy capacity, amid declining third-party EPC installations.

Recommendation

Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline

• We reiterate our BUY rating with a Target Price (TP) of INR455.