Buy Tata Power Ltd for the Target Rs 488 by Motilal Oswal Financial Services Ltd
Diversification drives resilience; multiple catalysts ahead
* In the recently concluded Annual General Meeting (AGM), Tata Power (TPWR)’s management highlighted a new long-term growth avenue through its planned entry into the nuclear power sector in collaboration with Nuclear Power Corporation of India Limited (NPCIL). This initiative will begin with an initial 440MW (2×220MW) Bharat Small Reactor (BSR) project. Based on our understanding, TPWR has identified land across three states, with the project likely requiring capex of ~INR180-200m/MW and operating at a PLF of over 90%. While preparatory work is underway, commissioning is unlikely before the early 2030s. Given India's target of 22GW of nuclear capacity by FY32, this initiative could create a meaningful long-term growth opportunity for TPWR. Management also shared its aspiration to nearly double revenue to INR1t and increase net profit to INR100b by 2030.
* We model ~34% YoY growth in FY27 PAT, led by a sharp reduction in Mundra losses to ~INR4b (from ~INR10b in FY26). This reduction will be aided by the Section 11 extension and subsequent SPPA framework, higher earnings from the Indonesian coal business (every USD10/t rise in coal realization adds ~10% to PAT), continued strong profitability at TP Solar backed by >90% cell utilization and third-party cell sales, and commissioning of ~2.0–2.5GW of captive renewable capacity.
* We reiterate our BUY rating on the stock with a TP of INR488.
Nuclear project with NPCIL: A new long-term growth avenue
* In our previous nuclear reports (link1, link2), we assessed the global nuclear landscape, the role of conventional reactors, nuclear economics, key execution challenges, and the investment opportunities for emerging private participants.
* The Indian Parliament passed the SHANTI Bill in Dec’25, which is set to enable calibrated opening of the sector for private participation to support the national target of 100GW nuclear power capacity by 2047.
* Initial project 440MW BSR: TPWR is targeting the development of an initial 440MW nuclear project (2×220MW) based on indigenous BSR technology in collaboration with NPCIL. While preparatory work is progressing, commissioning is unlikely before the early 2030s. We understand TPWR is currently in discussions with NPCIL to finalize the project structure and implementation framework.
* Project development underway: TPWR has identified land across three states, is securing water allocations, and is conducting site-specific geotechnical studies and preparing the Detailed Project Report (DPR). According to our channel checks, TPWR has also hired senior NPCIL personnel to strengthen execution capabilities, while discussions with the government on long-term nuclear fuel supply are ongoing.
* Economics indicate an attractive long-term opportunity: The proposed BSRs are estimated to require capex of ~INR180-200m/MW and operate at a plant load factor (PLF) of over 90%. The tariff framework is yet to be finalized.
* The emergence of AI-led data centers and other power-intensive industries represents a key demand driver for nuclear power, given their requirement for reliable, 24x7 low-carbon electricity, making nuclear an attractive complement to renewable energy.
Valuation and view
* The valuation of TPWR is segmented across various business units, leading to a TP of INR488.
* The regulated business is valued using a 2.5x multiple on regulated equity.
* The coal segment is valued at 1x book value.
* The renewables segment is valued at 12x FY28E EBITDA.
* The pumped storage segment and other segments are valued at 1x PB. Cash and investments add INR75/share.
* The sum of these contributions results in a TP of INR488/share, reflecting the comprehensive valuation of TPWR’s diverse business segments
For More Research Reports : Click Here
For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH000000412
