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Coal SPV drives the beat, Kleros case awaits outcome

Tata Power (TPWR) reported a strong Q2FY27 performance, with EBITDA growing 11% YoY and adjusted PAT rising 72% YoY. The PAT beat was primarily driven by (1) Coal SPV profitability improving to USD9/t versus ~USD6/t QoQ and USD2/t YoY, benefiting from higher imported coal prices, and (2) standalone PAT growth of 63% YoY, supported by Mundra operations and higher DSM revenues. Management reiterated its FY27 renewable capacity addition target of 2.5 GW, of which 25% was achieved in 1HFY27. Renewable commissioning is expected to accelerate as evacuation infrastructure improves. The company has also appointed Sanjay Banga, currently CEO & MD of Tata Power Renewable Energy, as CEO-designate of TPWR. Tata Power remains on track to achieve its FY27 capex guidance of INR250bn, having incurred INR100bn in 1HFY27. It continues to strengthen its storage portfolio, with the 1,000 MW Bhivpuri PSP targeted for H1CY29 and the newly approved 1,800 MW Shirota PSP targeted for CY31. On Mundra, the SPPA with Gujarat has been signed, while discussions with the remaining four states are progressing, with two at an advanced stage. Regarding the Kleros dispute, management remains confident of a favourable outcome. The Singapore Court of Appeal hearing is scheduled for 19 January 2027, with enforcement proceedings expected to take 3–6 months. We retain ACCUMULATE with a TP of INR414, implying 11x 1HFY29E EV/EBITDA. The outcome of the Kleros dispute remains the key stock catalyst, given that Tata Power has not recognised any provision against the USD490mn claim (excluding interest). The balance sheet remains healthy with cash balances of INR111bn and net debt-to-equity of ~1.27x.

Strong Performance:

Q2FY27 consolidated revenue (without other income) increase 26% YoY, was 3% above consensus estimates, strong performance driven by robust power demand, improved traditional generation profitability, higher coal JV earnings amid favourable coal prices and ramp-up of the renewable portfolio. Reported PAT (preminority) however grew 33% YoY to INR16.5 bn, supported by higher EBITDA from generation business and improved operational efficiencies Company reported exceptional items worth INR 1191.8 mn arising from the derecognition of Tata Projects as an associate, partly offset by impairment provisions on investment property and a joint-venture investment during the quarter. Net Debt stands at INR629bn with net debt/EBITDA at 3.4x and net debt/equity at 1.27x.

PSP Expansion and Solar Manufacturing to Drive Long-term Growth:

Tata Power is targeting renewable capacity additions of 2.5 GW in FY27, although some projects have faced commissioning delays due to pending evacuation infrastructure. Management expects connectivity to improve from December–January, enabling the commissioning of projects that are already ready. On the pumped storage front, the 1,000 MW Bhivpuri PSP is targeted for commissioning by CY29, while the company has announced an additional 1,800 MW Shirwata PSP near Lonavala, involving an investment of INR 118.7bn, to be funded through 75% debt and 25% equity. Additionally, 2,447 MW of Complex/FDRE projects are under construction, strengthening Tata Power’s roundthe-clock renewable energy portfolio. On the solar manufacturing front, the company has received the necessary approvals for its proposed 10 GW ingot and wafer manufacturing facility, to be developed in two phases of 5 GW each. The project entails an investment of approximately INR 65bn, with work expected to commence in November 2026 and the facility targeted to become operational by March 2028. This backward integration is expected to strengthen supply-chain security and reduce dependence on imported solar components.

Mundra: Progress Towards Long-term Resolution of Power Supply Arrangements:

Regarding the Mundra power plant, management stated that Tata Power has signed the SPPA with Gujarat, which has been filed with the CERC and is currently awaiting its order. Discussions with the remaining four procuring states are ongoing, with two states at an advanced stage, and management expects to conclude agreements with the majority of states by December 2026. The SPPA is expected to provide a long-term resolution for the plant's power supply arrangements. Meanwhile, billing to all five DISCOMs is already being undertaken under the SPPA, and its financial impact has been incorporated in the reported quarterly results. Management also expects the High Power Purchase Agreement (HPPA) to be concluded with the majority of states by December, following which it would become applicable to all states, subject to regulatory approval.

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