CLSA has raised its target price for Tata Power to Rs 351 from Rs 297, citing new renewable energy independent power producer (RE IPP) wins and the company's new solar cell and module factory. However, it maintains its "Underperform" rating, attributing the stock's 26% rise over the past year to an inflated valuation at around 30x financial year 2026 PE.
The brokerage noted Tata Power's recently established 4.3 GW solar factory, which will reduce the company's dependence on imported solar cells. While the factory is a significant step in achieving energy security, CLSA observed that the domestic solar cells are more expensive, leading to only limited savings.
"The takeaway from our visit to Tata Power's (TPWR) new solar cell & module factory was that it demonstrated PLI-led make in India as it intends to replace Imported solar cells with its own," the brokerage noted.
The key concern highlighted by CLSA is the weak profitability of Tata Power's RE IPP business, which showed a 6% year-on-year decline in net profit despite a 21% increase in capacity. Solar and wind utilisation rates have fallen, impacting the profitability of this segment. While Tata Power's solar EPC business showed impressive growth, the mixed performance in the non-fossil energy (NFE) sector reflects climate and market risks to its renewable energy operations.
Despite the challenges, CLSA has factored in the new solar factory and expected growth in renewable energy capacity, increasing its target price. However, the brokerage remains cautious, given the expensive stock valuation and limited improvement in profitability. Still, Tata Power continues to be a key player in India's renewable energy transition.
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