- Tata Power's stock sell-off reflects much of the Kleros arbitration impact already
- Nuvama upgraded Tata Power to Buy with a target price of Rs 421, 16% upside
- Kleros arbitration liability estimated at $490–640 million, largely priced in
Tata Power Stock In Focus: Tata Power's recent sell-off may have done much of the damage that investors feared from the Kleros arbitration case, leaving the stock with room to benefit from its emerging power-storage and transmission pipeline, according to Nuvama Institutional Equities.
Nuvama analysts Subhadip Mitra, Vikram Datwani, Mahir Moondra and Divyam Sureka have upgraded Tata Power to ‘Buy' from ‘Hold', raising its bull-case target price to Rs 421 from Rs 400. At the current market price of around Rs 364, that implies nearly 16% upside.
The brokerage's core argument is that the Kleros overhang is now largely reflected in the stock, while the market is yet to fully value medium-term growth opportunities.
Kleros Pain Is Largely In The Price
Tata Power shares have corrected around 8% since the adverse Kleros arbitration ruling last week. Nuvama estimates the potential cash outgo at $490–640 million, translating into roughly Rs 20 per share at the upper end.
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Even under its bear case, which assumes the full $640 million liability and additional debt to fund Tata Power's planned capex, Nuvama arrives at a target of Rs 363 — broadly around the current market price.
The brokerage therefore believes the arbitration overhang is largely priced in.
PSP Could Add Rs 600 crore To Annual Cash Flow
What the current price does not fully capture, according to Nuvama, is Tata Power's emerging pipeline across pumped storage projects (PSP), transmission and Bhutan hydro projects.
The brokerage values Tata Power's 2.8 GW PSP portfolio at Rs 14 per share. Timely commissioning could add around Rs 600 crore in annual cash flow, potentially becoming a catalyst for a re-rating as investors shift their focus towards FY29 earnings.
Nuvama has also assigned Rs 19 per share to Tata Power's roughly Rs 125 billion transmission work-in-hand, while the Khorlochhu hydroelectric project in Bhutan contributes another Rs 4 per share to its bull-case valuation.
More Upside Could Come From Transmission And Manufacturing
Nuvama's bull case does not include future transmission wins, which it estimates could add another Rs 19–20 per share over and above the current valuation.
There is also further optionality from Tata Power's planned expansion into ingot and wafer manufacturing. The brokerage believes greater integration in these areas could drive meaningful margin expansion beyond its current bull-case estimates.
Bear Case Already Around CMP
Nuvama's bear case assumes Tata Power loses its final Kleros appeal, pays the full liability and takes on around Rs 50 billion of incremental debt by FY28-end to fund its planned capex.
These factors together reduce its Rs 400 base-case valuation by about Rs 37 per share, resulting in the Rs 363 bear-case target.
With the stock trading around 2.4x price-to-book and 22x FY28E earnings, Nuvama believes the risk-reward has improved enough to warrant the upgrade to ‘Buy'.
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