ICICI Securities has reiterated a Buy rating for Tata Power, maintaining a target price of Rs 470, which implies an upside potential of approximately 30% from the current price of Rs 362. Tata Power's Q3FY25 results demonstrated resilience, supported by growth in its renewable energy (RE) business, solar manufacturing, and power distribution. However, execution challenges in solar EPC and RE projects remain key risks.

Performance Highlights for Q3FY25

Revenue and Profit Growth:
Tata Power reported revenue of Rs 151 billion, reflecting a modest 2% YoY increase. The company’s EBITDA rose by 18% YoY to Rs 31 billion, with an EBITDA margin of 20.4%, representing a gain of 280 basis points from the previous year.

Net Profit:
The adjusted net profit for the quarter stood at Rs 10.3 billion, marking an 11% YoY increase, aided by improved performance in renewable energy and distribution businesses.

Key Business Developments

Solar Manufacturing Capacity:
Tata Power successfully commissioned 4 GW of solar cell and module manufacturing capacity in Q3FY25, positioning itself as India's largest integrated solar manufacturer. The company produced 1.5 GW of modules during the first half of FY25.

Renewable Energy Expansion:
The company commissioned 865 MW of new renewable energy capacity in the first nine months of FY25 and plans to add another 600 MW in Q4FY25. Tata Power has also secured 2.8 GW of pumped storage projects and initiated work on a 5.1 GW clean energy collaboration in Bhutan.

Distribution Business:
Tata Power’s distribution business continues to expand, with improved operations in Odisha and strong contributions from its license areas in Delhi and Mumbai.

Strategic Focus Areas

Renewable Energy Growth:
With India's push towards renewable energy, Tata Power aims to capitalize on opportunities in solar EPC, rooftop installations, and utility-scale projects. The company’s comprehensive renewables platform is well-positioned to benefit from government initiatives such as the PM Surya Ghar scheme, expected to drive growth in FY26 and FY27.

Entry into Nuclear Energy:
Tata Power has expressed interest in nuclear power, anticipating that regulatory approvals for private sector participation may take two years, followed by a 4-5 year project development timeline.

Power Distribution Expansion:
The company is exploring opportunities to expand its distribution business, particularly in Uttar Pradesh, where two distribution companies are proposed for privatization. Tata Power’s success in turning around Odisha's discoms serves as a strong reference for future projects.

Financial and Operational Metrics

Key Metrics:

Market Cap: Rs 1.16 trillion
52-Week Range: Rs 495 (high) / Rs 338 (low)
EPS (FY25E): Rs 14.1
P/E Ratio: 28.6x
Quarterly Performance (Q3FY25):

These results reflect strong execution in renewable and distribution segments, offsetting challenges in thermal power operations at Mundra.

Technical Analysis

Support and Resistance Levels:

Immediate Support: Rs 338 (52-week low)
Immediate Resistance: Rs 400
Key Target: Rs 470
Candlestick Patterns:
Recent trading sessions suggest a consolidation phase, with the stock showing potential to break above Rs 400 if buying momentum strengthens. A close below Rs 338 could signal further downside risk.

Fibonacci Levels:
Based on the recent price range, the following retracement levels provide actionable insights:

38.2% Level: Rs 380
50% Level: Rs 416
61.8% Level: Rs 454
These levels may act as key support and resistance points for short-term traders.

Valuation and Analyst Outlook

ICICI Securities uses a Sum-of-the-Parts (SoTP) valuation method, assigning a value of Rs 470 per share. This revised target accounts for the company’s:

Renewable Energy Growth: 12.5x EV/EBITDA valuation for Tata Power Renewable
Solar Manufacturing: 35x FY27E earnings multiple
Distribution Business: 2.5x regulated equity for key license areas
Analysts highlight that successful execution of solar EPC and RE projects, along with securing long-term PPAs for Mundra, will be critical to sustaining growth.

Competitive Landscape

Tata Power competes with major utilities such as:

NTPC: Focused on large-scale thermal and renewable power generation
Adani Green Energy: A leading player in renewable energy, aggressively expanding its solar and wind portfolio
Tata Power’s vertically integrated model, spanning generation, transmission, and distribution, gives it a strategic advantage in capturing opportunities across India’s energy value chain.

Risks and Challenges

Key Risks Identified:

Execution Delays: Slower-than-expected progress in RE and solar EPC projects could hinder growth targets.
Regulatory Uncertainty: Changes in power tariffs and renewable policies may impact project viability.
High Debt Levels: With total debt nearing Rs 447 billion, effective capital allocation and debt management will be crucial.

Investment Recommendation

ICICI Securities recommends accumulating Tata Power shares, given the company’s strong fundamentals and growth potential in the renewable energy sector. Investors should monitor progress in key projects and macroeconomic factors influencing energy demand.

Disclaimer: Investors are advised to perform their own due diligence and consult with financial advisors before making investment decisions.