Tata Power share price forecast: Investing in future renewables?

Shares in Indian power company Tata Power (TATAPOWER) have continued to slump, despite strong financial results and thriving renewable energy business.

The stock traded at ₹194 as of 5 April at the National Stock Exchange of India (NSE), 33% down from the April 2022 intraday high of ₹298.05.

Indian energy companies are on analysts’ radars amid an ongoing power crisis and the country’s gradual move to clean energy. Indian power generation has been under pressure to increase coal imports amid rising electricity demand and persistently high coal prices.

Can Tata Power’s stock price reverse its decline and what does Tata Power do? We look at the company’s share performance and what factors are driving the Tata Power share price forecast.

What is Tata Power?

Tata Power is the largest private power generator in India, with an installed generation capacity of 13,068 megawatts (MW). 

Through its power distribution subsidiaries such as Tata Power Mumbai Distribution and Tata Power Delhi Distribution, the Mumbai-based company serves 12.2 million customers.

Apart from its power distribution business, the company operates 1,211 circuit kilometres (ckt.km) of transmission network in Mumbai and its suburbs.

It also has a joint venture with Power Grid Corporation of India in the construction of 2,328 circuit kilometres (ckt) of transmission lines from Siliguri in West Bengal via Bihar to Mandola in Uttar Pradesh.

Resurgent Power, a joint venture in which Tata holds a 26% stake, has obtained a letter of intent to acquire 100% shareholding in NRSS XXXVI, which is developing a 153 km transmission system. 

Tata Power is one of 29 publicly-listed subsidiaries of Indian multinational conglomerate Tata Group, which has businesses from steel and vehicles to hospitality. 

Tata Power share analysis

In April 2022, Tata Power share price reached an unprecedented intraday peak of ₹298.05, driven by a severe power shortage in the country and the company's foray into renewable energy, appreciating over 20% in the first week of April 2022. However, the rally has since tempered, with the stock experiencing a decline of more than 33% from the April 2022 zenith, as of 5 April 2023.

Escalating interest rates, a considerable debt load, and an overall bearish market sentiment have thrust the stock into the negative territory, notwithstanding the impressive earnings in 2022. 

Furthermore, the mounting interest rates have elevated the cost of servicing debt for the Tata Group subsidiary. The Reserve Bank of India (RBI), during its February 2023 policy meeting, increased the repo rate by 25 basis points to 6.5%. This marked the central bank's sixth consecutive hike, raising the rate by 2.5% since May 2022.

Latest earnings

On 3 February, the Indian energy giant reported a robust financial performance in the third quarter of 2023, driven by growth across all its business segments. 

The company, which operates in Generation, Transmission & Distribution, Renewables, and Trading, posted a 91% year-on-year increase in Consolidated Profit After Tax (PAT) to ₹1,052 crore, marking the 13th consecutive quarter of PAT growth.

Consolidated Revenue rose by 30% year-on-year to ₹14,339 crore, while Consolidated EBITDA (earnings before interest, taxes, depreciation and amortisation) climbed 53% year-on-year to ₹2,818 crore. 

These results solidified Tata Power’s position as India's premier green energy and consumer-centric power utility. Dr. Praveer Sinha, CEO & MD of Tata Power, expressed his satisfaction with the company's performance, stating:

Looking forward to another successful quarter, Dr. Sinha expressed confidence in the company's ability to create greater value for all stakeholders. As India takes on the G20 Presidency, Tata Power pledged to remain committed to making the country's power sector future-ready through its groundbreaking work in green energy transition. 

Tata Power share price forecast

With many factors at play, are Tata Power shares sell, buy or hold? Analysts have offered mixed views on a Tata Power stock forecast as the company continues to focus on increasing renewable energy capacity and expanding its distribution circle. 

Gejit BNP Paribas, in a 20 February analyst note, expressed concerns about volatile coal prices and unfavourable exchange rates in the near term, revising their rating on the stock to HOLD with a revised target price of ₹223. The analysts said: 

On the other hand, ICICI Securities, in a 6 February analyst note, revised its estimates for the full-year 2023 earnings and full-year 2024 earnings, factoring in higher coal prices and earnings from the sale of power from the Mundra plant. The analysts maintained a “Buy” rating with the price target  of ₹262.

BOB Capital Markets, in a 4 February analyst note, acknowledged that Tata Power fell slightly short of their estimates in the third quarter, but remained positive on the company as it cautiously adds renewable capacity without compromising on margins. The note said:

BOB Capital Markets maintained its BUY rating on Tata Power and its target price of ₹271, citing key positive drivers as growth in renewables and return on equity improvement in green subsidiaries.

When conducting a Tata Power share price prediction, keep in mind that analysts can be wrong. It is critical to conduct your own research. Your decision to trade should be influenced by your risk tolerance, market knowledge, and portfolio spread. And never trade money you cannot afford to lose.

The bottom line

Analysts have mixed views on Tata Power stock prediction. Tata Power has a solid business footing and electricity demand is expected to remain robust, with renewable energy set to play a bigger role in India’s electricity provision

Whether Tata Power stock is a suitable investment for you should depend on your own objectives. Remember, it’s important to reach your own conclusions about the stock and its likelihood of achieving analyst targets.

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