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Renewables, distribution drive earnings growth

* TPWR’s 1QFY26 EBITDA came in 25% above our estimate at INR41b, while adjusted PAT was in line with our est. at INR10.6b. Healthy 1Q EBITDA was backed by: 1) robust improvement in the Odisha distribution business as its AT&C losses narrowed and collection efficiency improved, 2) a strong performance in the solar EPC business, and 3) a higher contribution from the cell and module business with the facility operating at over 90% utilization now.

* Adjusted PAT, though in line with our est., was impacted by an adverse INR5.7b charge related to regulatory deferral balances. TPWR targets new RE capacity installation of 2GW in FY26. Potential supplementary PPA for Mundra and progress on distribution business bids in UP remain key catalysts for the stock in the coming quarters.

* Other highlights: 1) guides for FY26 capex of INR250b, incl. INR37b spent in 1Q, 2) net debt rose to INR480b as of 1Q end, with leverage ratio at 2.9x, 3) commenced work on pumped hydro projects, targeted to be commissioned in CY29.

* We reiterate our BUY rating on the stock with a TP of INR487

EBITDA above estimate; adj. PAT in line

Results overview:

* Cons. EBITDA of INR41.4b was 25% above our est. of INR33b (+15% YoY), as all core businesses, incl. generation, T&D and RE, posted strong growth.

* Revenue stood at INR180b (+4% YoY), while reported PAT was in line with our est. at INR10.6b (+9% YoY).

* Ad. PAT of INR10.6b (+29.5% YoY) was in line with our est. of INR10.8b

Operational highlights:

*Solar rooftop EPC and utility-scale EPC (third-party) order book stood at INR12.4b and INR27.3b, respectively, as of 1Q end.

* In 1Q, TPWR installed 270MWp of rooftop solar.

* The 4.3GW module and cell plant is operating at over 90% utilization. All four cell lines (1GW each) continued to ramp up in 1QFY26. In 1QFY26, 950MW of modules and 900MW of cells were supplied.

* As of 1Q, TPWR had a clean and green operational capacity of ~7GW (44% of total installed capacity), with an additional 10.2GW under construction.

Highlights of 1QFY26 performance

*Capex of INR37b was incurred in 1Q. FY26 capex target is INR250b (~60% for RE expansion and ~30% for T&D broadly, but might change).

* On track to commission 2.5-2.7GW of RE capacity in FY26.

* TP Solar’s cell and module plants are now fully operational. Management expects production to exceed 3,700MW for cells and modules in the coming years.

* Construction of 600MW Dagachhu hydro project in Bhutan has started, with completion expected by Nov’29.

* Section XI was not extended beyond 30 June; detailed discussions are underway for a supplementary PPA (SPPA) for the Mundra plant.

Valuation and view

* The valuation of TPWR is segmented across various business units, leading to a TP of INR487/share.

* Regulated business is valued using a 2.5x multiple on regulated equity.

* Coal segment is valued at 1.5x FY25 book value.

* Renewables segment is valued at 14x FY27E EBITDA.

* Pumped storage segment is valued at 1x PB, while other segments are valued at 1.5x PB. Cash and investments add INR66/share.

* The sum of these contributions results in a TP of INR487/share, reflecting the comprehensive valuation of TPWR’s diverse business segments.

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