Whalesbook
Earnings Outlook and Q4 Performance
Tata Power is aiming for stronger earnings in FY27, supported by its diverse clean energy business. It highlights a growing renewable pipeline, strong rooftop solar sales, and better profits from solar manufacturing. Easing concerns at its Mundra plant and investments in storage and hydro projects should also boost long-term growth. India's expected peak power demand exceeding 270 GW provides a positive market backdrop. However, March quarter results showed mixed financial performance. Consolidated revenue fell about 13% year-on-year to ₹14,900 crore, mainly due to lower earnings from thermal and hydro power. Despite lower revenue, underlying EBITDA rose modestly by 5.3% to ₹3,661 crore, showing operational efficiency and strength in growth areas. Full-year EBITDA grew by nearly 10% to ₹15,116 crore.
Growth Drivers and Execution Roadblocks
The company's solar manufacturing business is a key profit driver. Its 4.3 GW facility saw profit after tax more than double year-on-year to ₹857 crore in FY26. The rooftop solar segment also nearly doubled its profit to ₹890 crore, boosted by strong home demand and over 1.7 GW installed in FY26. The Mundra plant is also more stable, with new power purchase agreements being finalized. However, execution has been a consistent concern. Delays in getting transmission lines ready and project land approvals slowed down commissioning in FY26. The company expects these projects to proceed in FY27 and FY28. These execution issues, along with grid connection problems, meant that FY26 capital spending of ₹13,000 crore missed earlier targets. For FY27, Tata Power plans a significant ₹25,000 crore in capital spending across its business areas.
Valuation: How Tata Power Compares
Tata Power trades at a P/E ratio of roughly 30-37 times its estimated FY28 earnings, marking it as a growth stock. This compares to rivals like NTPC (P/E of 16-24), which have more modest valuations. JSW Energy's P/E is in a similar bracket at 33-41. Adani Green Energy trades much higher, with a P/E over 127, reflecting high investor expectations for its renewable growth. While Tata Power's valuation seems fair given its growing renewable capacity and diverse business, it's higher than the sector median P/E of about 20 for independent power producers. The stock has seen volatility, trading around ₹446-₹451 in May 2024, falling to ₹392.80 in May 2025, before recovering.
Key Risks Highlighted by Skeptics
Despite positive views from some analysts, a critical perspective highlights several risks. Goldman Sachs rates it 'Sell' with a ₹300 target, citing worries about renewable execution, transmission limits, and a valuation premium over its historical book value. The significant revenue drop in the March quarter, partly from thermal and hydro, needs attention. This is especially true with ₹25,000 crore in capex planned for FY27, which could pressure cash flows. Moody's notes the wider Indian power sector faces challenges from rising energy costs, which could affect government finances and planned spending. The company's historically low 10.7% return on equity over three years and trading at over 3.3 times book value also point to potential overvaluation. Management's past issues with project execution, especially in transmission and grid connections, remain a worry and could slow down planned earnings growth in FY27 and FY28.
Outlook and Analyst Views
Tata Power's clean energy capacity should grow from 46% to about 66% once its 9.6 GW pipeline is operational. It expects transmission and distribution operations to contribute more to profits, aided by fewer losses and recoveries from regulators. Energy storage projects are also set to strengthen its market position. While most analysts recommend 'Buy' with price targets between ₹410 and ₹490, some warn of execution risks. How well the company handles these operational issues, manages its large spending, and seizes opportunities in growing electricity demand will shape its future.