Buy Tata Power Ltd For Target Rs. 1,330 By JM Financial Services
Power generation at imported coal-based plants, including the 4GW Tata Mundra UMPP, has been hit because the government has not extended implementation of Section 11 of the Electricity Act after the earlier extension ended in Jun’25. Due to rising power demand, the government had hitherto been repeatedly invoking Section 11. In the past, Mundra operated at PLFs of 25%/32%/56%/65% during FY22/FY23/FY24/FY25. The elevated PLFs in FY24 and FY25 were primarily driven by enforcement of Section 11. The plant reported generation of 2,189MUs and 2,206MUs in May and Jun’25 with PLFs of 73.6% and 76.6% - that has slumped to nearly zero after 4th July. The plant along with coal mining companies reported PAT of INR 11bn in FY25 vs. INR 286mn in FY22 when Section 11 was not under implementation. We expect the company will tie up PPAs with five beneficiary states (Gujarat, Maharashtra, Rajasthan, Punjab, and Haryana). We maintain our Buy rating on stock with an SOTP-based TP of INR 461.
* Mundra UMPP: The Mundra Ultra Mega Power Plant (UMPP) has been operating under Section 11 of the Electricity Act, which ensures full fuel pass-through arrangement subject to adjustment of profits from coal mining companies in Indonesia. The plant along with coal mining companies reported PAT of INR 11bn in FY25 vs. INR 286mn in FY22 when Section 11 was not under implementation.
* Section 11 extension: The power ministry has been repeatedly invoking Section 11 of the Electricity Act directing all 17GW of thermal power plants using imported coal to operate at full capacity due to rising power demand. Most recently, it was extended from 1st May to 30th Jun’25, anticipating 270GW of peak demand during the summer months (Jun’25).
* Non-extension of Section 11: Early onset of monsoon across the country led to subdued power demand, with energy demand declining to 298BU (-3% YoY) and peak demand falling to 243GW (-3% YoY) during May-Jun’25. Given the weak demand environment, the government did not extend Section 11 beyond June, impacting the generation of imported coal-based plants that were operating under its mandate.
* Mundra generation: Tata Power’s Mundra plant reported generation of 2,189MUs and 2,206MUs in May and Jun’25 with PLFs of 73.6% and 76.6%. With the expiry of Section 11 at the end of June, generation dropped significantly in July, with the plant operating on only 3 out of the first 17 days and reporting generation of just 106MUs.
* PLF trend: Mundra operated at PLFs of 25%/32%/56%/65% in FY22/FY23/FY24/FY25, respectively. The elevated PLFs in FY24 and FY25 were primarily driven by enforcement of Section 11.
* JM View: Going forward, we expect Tata Power to tie up PPAs for the Mundra plant with five beneficiary states (Gujarat, Maharashtra, Rajasthan, Punjab, and Haryana). We maintain our BUY rating on the stock with an SOTP-based TP of INR 461.
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