Financial services firm Jefferies has issued a 'Buy' rating for Torrent Power, forecasting a substantial 37% potential upside on its shares. The brokerage has set a target price of Rs 1,780 for the power utility, valuing the company at 15 times its estimated September 2028 EV/Ebitda, a premium compared to JSW Energy.
Key Drivers for Optimism
Jefferies' positive outlook is primarily driven by Torrent Power's robust financial health and strategic operational advantages. The firm notes that Torrent Power maintains a healthier balance sheet compared to peers like JSW Energy. Furthermore, its regulated Return on Equity (ROE) from the power distribution business significantly mitigates the company's overall risk profile, providing a stable earnings base.
The brokerage also commended Torrent Power's consistent track record in enhancing operational efficiency within its power distribution segments, which contributes to its strong financial performance.
Future Growth Initiatives
Torrent Power is actively pursuing several large-scale projects expected to fuel future growth:
- Pumped Storage Projects (PSPs): Management plans to add 3 GW of PSPs by the fiscal year 2029. Jefferies notes that these projects were not fully factored into its earlier estimates, leaving room for further upside potential.
- Thermal Capacity Expansion: The company recently acquired the 1.4 GW Nabha Power plant, which is expected to contribute significantly to its capacity and earnings from the second half of FY27. Additionally, Torrent Power is developing a new 1.6 GW thermal plant in Madhya Pradesh, with land secured and equipment ordered. This plant is tied to a 25-year power purchase agreement with a Madhya Pradesh discom at a healthy tariff.
Jefferies forecasts a 13% compound annual growth rate (CAGR) in EBITDA for Torrent Power between FY26 and FY30. This growth is anticipated to be led by substantial renewable capacity additions and steady expansion in its transmission and distribution (T&D) business, with renewable EBITDA projected to see a 36% CAGR.
Challenges and Outlook
Despite the strong growth prospects, Jefferies acknowledges near-term challenges, particularly concerning transmission infrastructure unavailability. This issue has led to some delays in commissioning timelines for projects, although the brokerage had already accounted for such delays in its estimates.
Overall, Jefferies maintains a bullish stance, advising a 'Buy' for Torrent Power shares based on its healthy fundamentals and strategic expansion plans.