Broker’s call: Tata Power (Hold)
Target: ₹345
CMP: ₹354.65
In our May 9, 2024, report Risk to pace of execution, we highlighted that Tata Power is a resilient organisation but that a run-up in stock price was pricing in execution of multiple projects and events outside the company’s control.
These included: weakness in power demand impacting growth projections; slower signing of power purchase agreements (PPA); delayed privatisation of state-owned distribution companies (Discoms) like those of Uttar Pradesh and Rajasthan; delayed start of construction of pumped storage projects (PSP) on environmental approvals; lack of clarity on monetisation of its stake in Tata Sons; low coal prices; and no progress on resolving the Mundra issue.
Tata Power’s stock price has corrected 31 per cent from its 52-week high of ₹485.
We update our estimates and valuation to factor in project progress, a strong start to solar module/cell manufacturing, and the start of new programmes like pumped storage and hybrid. We increase our FY25-26e EPS estimates by 9-13 per cent and introduce FY27e. We roll forward our valuation basis and continue to use a sum-of-parts valuation, resulting in a new target price of ₹345 (from ₹300). We upgrade to Hold (from Reduce).
Upside risks: faster execution of renewables and PSP projects and progress on discom privatisation; and downside risk: sustained weakness in power demand and weaker execution.
