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Past the Mundra Drag; Focus on Renewables

Tata Power (TPWR) adjusted PAT growth of 10% YoY was broadly in-line with our estimate. Growth is driven by TP solar, IPP, Delhi & Odhisa discom. In Q4FY26 T&D contributed 60% to PAT , followed by renewable at 25% and coal / standalone at 10%. The key overhang through FY26 the Mundra SPPA is now largely resolved, with the agreement concluded with Gujarat and the remaining four procurer states in advanced stages of finalisation, materially reducing earnings uncertainty from FY27 onwards. TPWR has an operational capacity of 16.7GW, currently skewed toward thermal generation; however, this mix is expected to improve materially with ~5GW of in-house renewable capacity under implementation, targeted for commissioning equally across FY27 and FY28. EBITDA growth to be driven by continued performance at Odhisa discom, IPP addition and TP solar. We maintain our HOLD rating with an SoTP-based TP of INR400/share. Key catalysts include execution on the ~2.5GW FY27 renewable commissioning target, full SPPA finalisation across all Mundra procurer states, sustained ramp-up of the solar manufacturing business, and potential upside from the nuclear SMR initiative over the medium term.

Subdued quarter on revenue; PAT resilient:

Q4FY26 consolidated revenue (without other income) declined 13% YoY, primarily due to the Mundra UMPP operating under Section 11 for most of FY26, though FY26 marks a landmark year with first ever full-year PAT exceeding INR50bn. Reported PAT (pre-minority) however grew 8% YoY to INR14.2bn, supported by strong performances across Odisha DISCOMs, solar cell & module manufacturing, and rooftop solar, as well as recognition of prior period regulatory income of INR7.8bn in the distribution business (vs INR3.3bn in FY25). Excluding this one-off, underlying earnings growth would have been more modest. Debt stands at INR560bn with net debt/EBITDA at 3.3x and net debt/equity at 1.2x - management committed to maintaining this discipline

Mundra SPPA concluded; earnings drag largely behind:

The Mundra UMPP operated under Section 11 through FY26 (~9 months of disrupted operations), acting as a significant drag on consolidated earnings. The company has now concluded the SPPA with Gujarat, with billing being done as per SPPA terms — this has already been accounted for in Q4FY26 results. The remaining four procurer states are in advanced stages of approval, with management expecting finalisation within four to six weeks. Importantly, coal cost remains a full pass-through under the SPPA structure (including any FOB cost changes such as potential Indonesian export duties), which substantially de-risks the earnings profile of the plant going forward. With the SPPA resolution largely behind the company, the Mundra earnings drag — which weighed heavily on FY26 consolidated PAT — is expected to materially reduce from FY27 onwards. Management also noted that monetisation of Indonesian coal assets remains an option once all SPPAs are signed, subject to market conditions and valuation.

Renewable Energy Pipeline:

~5GW of projects under implementation, all in-house. 50% expected to be commissioned in FY27, balance in FY28. FY27 commissioning target is ~2.5GW (solar ~1.5-1.8GW, balance wind), all as hybrid/FDRE projects - management has moved away from standalone solar or wind. All wind turbines have been tied up. Going forward, new bids will be hybrid with storage (pumped hydro), targeting better returns than pure renewable bids of the last two years. Management is also in discussions with large C&I customers including Tata Steel and data centers for captive hybrid supply. Cell and module plant delivered PAT of INR8.6bn in FY26, more than doubling YoY, on stabilised operations and strong yields. Majority of FY27 utility scale and rooftop projects will use in-house domestic cells and modules. A new 10GW wafer and ingot plant is being set up in two phases to supply Indian-made wafers to the cell and module plant from June 2028 onwards, ahead of the domestic content mandate

Rooftop Solar:

Rooftop solar PAT reached INR5.0bn in FY26 with installations doubling YoY (~1.7GW, ~40% market share). Management targets 20%+ market share in FY27 with growth of at least 50-60% in rooftop business. Government subsidy-linked rooftop mandatorily requires Indian-made cells — directly addressable from in-house manufacturing. Power demand growth was modest at 2% in Q4 but has accelerated to 5-6% from April onwards, with peak demand touching 256GW. Management expects peak demand to cross 270GW in the next one to two months driven by heatwave conditions and El Niño impact. Power systems remain stable with incremental demand being met by coal, hydro, and renewables.

Nuclear & New Initiatives:

Tata Power is working with three state governments on small modular reactor (SMR) projects - 2x220MW (440MW) plants in collaboration with NPCIL. Land identified, water allocation approvals received, geotechnical studies underway. Detailed project reports (DPRs) expected within six months for select states.

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