Global brokerage firm Citi has reiterated its 'Buy' rating for Tata Power Company Ltd, projecting a significant 41.41% potential upside for the stock. Citi set a target price of Rs 525, up from Tuesday's closing price of Rs 371.25, citing the company's strong Q1 FY27 performance and its strategic focus on lower-volatility businesses.
Strong Q1 Results and Capex on Track
Tata Power reported a steady start to FY27, with Q1 revenue increasing 6% year-on-year to Rs 19,100 crore. Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) grew 8% to Rs 3,900 crore, while Profit After Tax (PAT) saw an 11% rise to Rs 1,200 crore. These figures were largely in line with Bloomberg consensus estimates, demonstrating broad-based PAT growth across business clusters.
The company's capital expenditure (capex) remained aligned with its FY27 guidance. In Q1, Tata Power incurred Rs 5,400 crore in capex, marking a healthy start towards its Rs 25,000 crore full-year plan. Management anticipates Q2 capex to further increase to Rs 6,000-6,500 crore, driven by planned commissioning of 800-900MW of capacity and accelerated construction in transmission and pumped-storage projects.
Strategic Business Transition and Mundra Plant Update
Citi noted Tata Power's deliberate, multi-year transition towards businesses with lower volatility, with capital expenditure predominantly directed towards transmission & distribution (T&D) and renewable energy. This diversification strategy is expected to enhance the company's resilience. The brokerage also highlighted Tata Power's strong balance sheet, which provides ample headroom for accelerating medium-term growth.
Regarding the Mundra plant, Citi confirmed its operation under Section 11, with procurers being billed according to a supplementary PPA framework. This arrangement is largely cost-reflective, covering the actual cost of coal, operating parameters, and fixed costs. While the supplementary PPA with Gujarat has been executed, approvals from three other procuring states are expected during August.
Odisha Distribution and Rooftop Solar Momentum
Despite healthy underlying demand, Tata Power's Odisha distribution performance in Q1 was temporarily impacted by collection and billing issues. Units sold increased 10.4% year-on-year, but collections were delayed due to pending government payments, restrictions on consumer disconnections during a heatwave, and a lag between summer consumption, billing, and cash realization. Management expects these deferred amounts to be largely recovered in Q2, emphasizing that these are timing issues, not operational deterioration.
The rooftop solar business continued its strong momentum, with Q1 revenue surging 64% year-on-year to approximately Rs 1,350 crore. Management projects a further 60% growth in FY27 and believes its FY30 cumulative revenue aspiration of Rs 30,000 crore could be achieved by FY29. Tata Power aims to increase its market share from 12-13% to about 25%, supported by its robust channel network, supply chain, and after-sales capabilities. The addition of battery storage to residential and industrial rooftop offerings is also expected to expand the addressable market significantly.