Tactical Advice: Buy Tata Power Shares
In a significant development, Tata Power, one of India's leading power companies, has reported a robust performance in the first quarter of the financial year 2025-26 (Q1-FY26). The company's adjusted Profit After Tax (PAT) for this period was ₹1,060 crore, marking a 9% year-on-year (y-o-y) increase and a 23% growth on a joint managing fee (JMFe) basis.
However, the subdued power demand in Q1-FY26, attributed to an early monsoon, resulted in a year-on-year decline in the utilisation of generation assets for the company. This decline, in turn, affected Tata Power's standalone business revenue and PAT, causing a -6% y-o-y decrease in the standalone revenue to ₹5,200 crore.
Despite the decline in power demand, Tata Power managed to exceed both internal and external expectations, benefiting from its integrated operations. The company's leadership in expanding rooftop solar is expected to drive its future performance.
Other expenses for Tata Power decreased by -16% on a JMFe basis in Q1-FY26. Lower than expected fuel cost also contributed to a -8% JMFe decrease in fuel costs for the company.
Looking ahead, the company's continued strong performance in Odisha is expected to continue impacting its future performance. The operationalisation of integrated solar cell-module manufacturing is also expected to contribute to the company's future performance.
Moreover, the forecasted Compound Annual Growth Rate (CAGR) for Tata Power's Revenue, EBITDA, and PAT for the years FY25-FY28 is not explicitly stated in the provided search results. However, some relevant financial growth figures and estimates can be inferred from the data.
According to the Sharekhan Investor's Eye report, net sales for Tata Power are projected to grow from Rs 11,968 crore in FY25 to Rs 16,440 crore in FY27, implying a significant growth rate over those two years. Adjusted PAT is expected to increase from Rs 579 crore in FY25 to Rs 797 crore in FY27, showing double-digit percentage growth year-on-year in that period.
While the EBITDA growth figures or explicit CAGR for EBITDA are not clearly stated, EV/EBITDA multiples show improvement, suggesting EBITDA growth but the exact CAGR is unavailable.
Other sources confirm strong earnings growth expectations driven by renewable capacity additions but do not quantify FY25-28 CAGR.
In terms of financial projections, the current market price (CMP) of Tata Power is ₹385.30. The target price for the company is ₹436, implying 13.3x EV/EBITDA and 3.1x P/B on FY27.
Notable developments include the likely signing of a Power Purchase Agreement (PPA) for Mundra, which is expected to impact the company's future performance. Additionally, the commencement of work on the 1,000 MW Bhivpuri pumped hydro storage plant is also expected to impact the company's future performance.
In conclusion, Tata Power's Q1-FY26 performance demonstrates resilience in the face of subdued power demand, and the company's future growth is forecasted to be robust, with the Revenue CAGR for FY25-27 estimated to be approximately 16.7%, PAT CAGR estimated to be approximately 17.2%, and EBITDA CAGR expected to grow robustly, although the exact CAGR is not explicitly provided.
- The robust performance of Tata Power in Q1-FY26 is not only reflected in the 9% year-on-year increase in Adjusted Profit After Tax (PAT) but also a 23% growth on a joint managing fee (JMFe) basis.
- While Tata Power's standalone business revenue and PAT declined due to a subdued power demand, the company managed to exceed both internal and external expectations, demonstrating its resilience in diverse business conditions.
- Analysts predict substantial growth for Tata Power in the upcoming years, with net sales expected to grow from Rs 11,968 crore in FY25 to Rs 16,440 crore in FY27, and Adjusted PAT projected to increase from Rs 579 crore in FY25 to Rs 797 crore in FY27.
- To support its future growth, Tata Power is likely to sign a Power Purchase Agreement (PPA) for Mundra, and commence work on the 1,000 MW Bhivpuri pumped hydro storage plant, both of which are expected to impact the company's performance positively.
- A subscription to personal-finance and investment analysis can provide valuable insights into the future prospects of Tata Power, as it offers detailed reports on the company's fortunes and growth projections, such as the Revenue CAGR for FY25-27 estimated to be approximately 16.7%, PAT CAGR estimated to be approximately 17.2%, and robust EBITDA growth, although the exact CAGR is not explicitly provided.
