Motilal Oswal Financial Services has reiterated a BUY call on Tata Power with a target price of Rs.455, implying an upside of 18% from the current market price of Rs.387. The report highlights a significant turnaround trigger in the Mundra power plant through the finalized Supplemental Power Purchase Agreement (SPPA), which could sharply reduce losses. Additionally, elevated coal prices driven by geopolitical tensions offer earnings upside via Indonesian coal assets. With strong distribution performance, renewable expansion, and backward integration strategies, Tata Power stands at the intersection of operational recovery and structural growth, making it a compelling investment opportunity.

Motilal Oswal Reaffirms BUY Call with Rs.455 Target

Motilal Oswal Financial Services has maintained its BUY recommendation on Tata Power, assigning a target price of Rs.455, reflecting an upside potential of approximately 18% from the current market price of Rs.387.

The brokerage’s conviction is anchored in structural business improvements, resolution of legacy challenges, and emerging earnings catalysts across both thermal and renewable segments.

Mundra SPPA: A Structural Turning Point for Earnings

A defining development for Tata Power is the near-resolution of the long-standing issues surrounding its Mundra imported coal-based power plant.

The finalized Supplemental Power Purchase Agreement (SPPA) with Gujarat marks a major inflection point, addressing viability concerns that have weighed on earnings for years.

The Mundra plant currently incurs annual losses of approximately Rs.17–18 billion.
Post-SPPA implementation, losses are expected to drop sharply to around Rs.3–4 billion annually.
This implies a ~75% reduction in losses, significantly improving consolidated profitability.

From a forward-looking perspective, this development could drive a 4.5–5.5% upward revision in FY27–FY28 earnings estimates, fundamentally reshaping the company’s earnings profile.

Coal Business Upside: A Geopolitical Tailwind

Beyond operational fixes, Tata Power is benefiting from favorable macroeconomic conditions, particularly in the coal segment.

The company holds strategic stakes in Indonesian coal assets, including:

Kaltim Prima Coal (30%)
BSSR & AGM (26%)

Amid rising geopolitical tensions, particularly the Iran–Israel conflict, global coal prices have surged.

Key earnings implication:

Every USD10/ton increase in coal realizations could drive an estimated 18% upside to FY27 net profit.

This positions Tata Power uniquely among Indian utilities, offering exposure to both regulated returns and commodity-driven upside.

Operational Momentum: Distribution and Solar Drive Growth

Tata Power continues to demonstrate robust operational performance across its core businesses.

Key growth drivers include:

Strong execution in Odisha and Delhi distribution businesses
Rapid expansion in the rooftop solar segment
Increasing focus on renewable capacity addition
Opportunities in state discom privatization, particularly in Uttar Pradesh

Additionally, the company’s plan to develop 10GW of ingot/wafer manufacturing capacity reflects a strategic push toward backward integration, reducing dependency and improving margins.

Mundra Plant Restart and Near-Term Demand Boost

According to developments highlighted in the report, the Mundra plant is expected to operate at full capacity under Section 11 of the Electricity Act during peak summer demand.

The 4.1GW plant is set to operate between April and June 2026.
This temporary operational mandate is expected to reduce losses by nearly 75% in the interim period.

This ensures near-term cash flow support while long-term structural fixes via SPPA are implemented.

Financial Performance and Earnings Trajectory

Tata Power’s financial trajectory reflects a steady transition toward higher profitability.

Key projections (FY26–FY28):

Revenue expected to grow from Rs.650.9 billion to Rs.956.4 billion
EBITDA projected to rise from Rs.133.2 billion to Rs.220.6 billion
Adjusted PAT expected to increase from Rs.38.5 billion to Rs.63.4 billion

Earnings growth remains strong:

FY27 EPS growth: ~38.9%
FY28 EPS growth: ~18.7%

This growth is supported by both operational improvements and favorable external factors.

Valuation Framework: Sum-of-the-Parts Approach

Motilal Oswal values Tata Power using a Sum-of-the-Parts (SoTP) methodology, reflecting its diversified business structure.

The renewable segment contributes the largest share of valuation, underscoring Tata Power’s transformation into a clean energy-focused utility.

Key Financial Ratios and Balance Sheet Trends

The company’s improving profitability is also reflected in key ratios:

Return on Equity (RoE) expected to rise to 14.8% by FY28
Return on Capital Employed (RoCE) projected at 8.8%
Debt-to-Equity ratio remains elevated but manageable, trending toward 1.6x

While leverage remains a watchpoint, strong operating cash flows and improving EBITDA margins provide balance sheet comfort.

Investment Outlook: Positioned for Structural Re-Rating

Tata Power stands at a critical juncture where multiple catalysts are converging:

Positive triggers:

Resolution of Mundra losses
Strong renewable pipeline
Upside from coal price realization
Distribution business stability
Policy-driven opportunities in power sector reforms

Risks to monitor:

High leverage levels
Regulatory delays in SPPA adoption across states
Volatility in commodity prices

Bottomline for Investors: A Balanced Play on Energy Transition and Earnings Recovery

Tata Power represents a rare blend of legacy thermal turnaround and future-facing renewable growth. The resolution of the Mundra overhang removes a key structural drag, while coal-linked upside and renewable expansion provide dual earnings engines.

With improving financials, visible earnings triggers, and an attractive valuation framework, the stock is well-positioned for re-rating.

Motilal Oswal’s BUY call with a target of Rs.455 appears justified, particularly for investors seeking exposure to India’s evolving power sector with a long-term horizon.