Motilal Oswal Predicts 18% Upside for Tata Power After Gujarat Deal

ENERGY
Whalesbook Logo
AuthorRiya Kapoor|Published at:
Motilal Oswal Predicts 18% Upside for Tata Power After Gujarat Deal
Overview

Brokerage house Motilal Oswal reiterated a 'Buy' rating on Tata Power Company, setting a target price of ₹455, implying an 18% upside. This bullish stance follows the Gujarat government's finalization of a Supplemental Power Purchase Agreement (SPPA) for the Mundra plant, expected to significantly reduce its annual losses. The firm also highlighted robust performance in distribution operations, rooftop solar, and the Indonesian coal business as key growth drivers.

Gujarat SPPA Approval Boosts Tata Power's Mundra Plant

The Gujarat government's approval of a Supplemental Power Purchase Agreement (SPPA) for Tata Power's Mundra imported coal-based power plant marks a critical turning point. This development is anticipated to drastically cut the plant's annual losses by an estimated 75%, potentially reducing them from ₹1,700-1,800 crore to around ₹700 crore. Motilal Oswal forecasts this will lead to an upward revision of 4.5%-5.5% in earnings for FY27 and FY28, factoring in a significantly improved financial outlook for the plant previously operating under Section 11 until June 2025 and remaining non-operational since.

Tata Power's Diversified Growth Drivers

Beyond the Mundra plant's revival, Tata Power's diverse operations and strategic moves are key growth drivers. The company sees strong results from its distribution utilities in Odisha and Delhi. Expansion in the rooftop solar sector, alongside planned 10GW ingot and wafer manufacturing facilities, aims to secure its supply chain and strengthen its market position. New opportunities like the potential privatization of Uttar Pradesh discoms also offer substantial expansion paths.

Indonesian Coal Business Offers Additional Upside

An additional layer of potential upside comes from Tata Power's Indonesian coal business. Motilal Oswal estimates an annualised 18% boost to FY27 net profit for every $10 per tonne increase in realisations from its coal assets. This prospect is amplified by rising global coal prices, partly influenced by geopolitical tensions like the Iran-Israel conflict. The company holds significant stakes in Indonesian ventures Kaltim Prima (30%) and BSSR & AGM (26%), positioning it to benefit from these favourable market conditions.

Recent Financials and Stock View

Although Tata Power's stock has shown modest returns of 4% over the past year and fell 2.25% in the last five trading days, Motilal Oswal sees significant potential. In the third quarter of fiscal year 2026, the company reported a net profit of ₹1,194.33 crore, a slight year-on-year increase. Revenue from operations decreased by 4% to ₹14,485 crore, but Earnings Before Interest, Taxes, Depreciation, and Amortisation (EBITDA) grew 12% year-on-year to ₹3,913 crore. The ₹455 target price suggests a valuable opportunity for investors looking at India's growing energy market.

Disclaimer:This content is for informational purposes only and does not constitute financial or investment advice. Readers should consult a SEBI-registered advisor before making decisions. Investments are subject to market risks, and past performance does not guarantee future results. The publisher and authors are not liable for any losses. Accuracy and completeness are not guaranteed, and views expressed may not reflect the publication’s editorial stance.