Tata Power: An Analysis of Recent Upgrades

Nuvama Securities has changed its recommendation for Tata Power, now labeling it a “Hold.” This shift is based on increased confidence that Tata Power will reach its goal of having 30 gigawatts (GW) of electricity-generating capacity by the year 2030. This includes a significant number of new projects in the renewable energy and pumped storage areas. The brokerage suggests a target price of ₹385 per share.

Key Points

• Nuvama upgraded Tata Power to “Hold” due to improved capacity goals.
• Tata Power aims for 30GW of capacity by 2030, mostly renewables.
• ₹385 target price set by Nuvama Securities analysts.
• 26GW of capacity already secured, boosting confidence in execution.
• Significant pumped storage projects will reach completion by 2029-30.
• Investment in renewables will total approximately ₹1.25 trillion over five years.

The upgrade reflects a growing belief that Tata Power is on track to achieve its ambitious growth targets. A crucial part of this plan involves building around 30GW of electricity capacity, primarily through renewable energy sources like solar and wind, and also through pumped storage projects. These projects will provide electricity even when the sun isn’t shining or the wind isn’t blowing.

Nuvama’s analysis highlights that Tata Power has already secured 26 gigawatts of capacity. This is a substantial achievement and shows that the company is successfully bringing these new projects to fruition. The company anticipates that new pumped storage projects – large batteries that store energy – will begin contributing to the grid by 2029 and 2030, further enhancing the reliability of the electricity supply.

Currently, Tata Power has approximately 9 gigawatts of pumped storage capacity under construction. This means they could potentially generate nearly 30 GW of round-the-clock electricity – electricity available 24/7 – thanks to these projects. The Bhivpuri Pumped Storage Project (1GW, costing ₹5,700 crore) and the Shirawata Pumped Storage Project (1.8GW, costing ₹7,850 crore) are key components of this plan, and they are expected to be fully operational by 2029-30.

The company plans to invest around ₹25,000 crore each year until 2030, with nearly 65% of that money going towards renewable energy. Over the next five years, this investment is estimated to total approximately ₹1.25 trillion. Despite this large investment, Tata Power aims to keep its debt levels manageable, targeting a net debt-to-equity ratio of 1.5 to 2x.

Beyond the large-scale renewable energy projects, Tata Power is also focusing on improving its distribution business in Odisha. Losses are decreasing, and the company is making significant investments in automation, smart grid technology, and improved billing systems. This transformation is expected to boost the company’s earnings in Odisha.

Furthermore, Tata Power intends to bid for two High Voltage Direct Current (HVDC) projects valued at ₹25,000-30,000 crore each, along with 765kV transmission lines. Winning one of these bids has already been incorporated into the company’s financial projections for 2030. Investment in distribution outside of Odisha remains steady, with Mumbai receiving approximately ₹1,000-1,500 crore annually.

Nuvama noted that while growth will primarily happen later on, after 2028, Tata Power’s stock offers limited downside at current levels. The company has delivered nearly zero returns over the past two years and is trading about 13% below its highest price. The improved prospects for Tata Power to break even at the Mundra UMPP (Ultra Mega Power Project) further support this “Hold” rating.

“Ultimately, Tata Power offers a cautious investment perspective given its strategic ambitions and current market position.”