Motilal Oswal has issued a 'Buy' rating on Tata Power, setting a target price of Rs 442. This comes as the stock has fallen 27% in six months, with analysts citing expected profit growth from the Mundra plant and renewable energy division, despite ongoing debt and legal concerns.
Motilal Oswal has initiated coverage on Tata Power with a 'Buy' rating, setting a target price of Rs 442 per share. This recommendation suggests a potential upside of approximately 24% from the current stock price of Rs 355.20. The brokerage’s optimistic view comes after a challenging six-month period for the stock, which has seen a decline of 27% amid broader market volatility.
Earnings Outlook and Mundra Turnaround
The brokerage anticipates a 34% year-over-year increase in profit after tax for the current financial year. A significant part of this optimism is tied to the company's Mundra power plant. Analysts expect losses at this facility to shrink to about Rs 4 billion, a notable improvement from the Rs 10 billion loss recorded in the previous financial year. This change is largely driven by policy adjustments, including the extension of Section 11 provisions and the use of the Supplementary Power Purchase Agreement framework, which allows for better cost recovery.
Beyond the thermal power assets, the brokerage highlights the consistent performance of the company's solar business, specifically the TP Solar division. This unit is operating with cell utilization rates above 90%, supported by sales to external buyers. Furthermore, the company aims to commission 2 gigawatts of captive renewable energy capacity in the current financial year, which analysts view as a critical step in maintaining long-term growth.
Risks and Financial Context
While the brokerage is positive about the operational turnaround, investors should also consider the potential risks flagged by analysts. The company faces high debt pressure, with a Debt-to-EBITDA ratio—a measure of how much debt exists relative to operating earnings—of approximately 5.81x. This level of borrowing can limit financial flexibility. Additionally, the company is involved in the Kleros arbitration case, which remains a source of uncertainty. While analysts suggest this potential liability may already be accounted for in the current stock price, it remains a factor that could influence future sentiment.
Another point of focus is the company's dependence on international coal operations. Profitability here is sensitive to global coal prices, meaning geopolitical instability or changes in commodity markets can directly impact earnings. As the company moves toward its upcoming quarterly results, scheduled for November 11, 2026, the market will likely monitor whether the operational efficiency gains in the solar and Mundra segments can offset the pressures from debt and coal price fluctuations.