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Diversification and strong balance sheet fuel growth An integrated power utility play

* We initiate coverage on Torrent Power (TPL) with a Neutral rating and an SoTP-based TP of INR1,270. TPL is an integrated power utility spanning electricity generation, transmission, and distribution. It boasts a diversified installed capacity of 6.6GWp, representing 4.5GW of thermal and ~2.1GWp of renewable (RE) capacity (including ~1.8GW contracted).

* The company holds licenses for distribution in Gujarat's major cities and Dadra & Nagar Haveli/Daman & Diu (~2,050 sqkm), in addition to franchisee operations (1,007 sqkm). It also operates 355km of 400kV and 128km of 220kV transmission lines and has operationalized another 400 kV M/C line of 60km and bay upgradation from 2,000 Amp to 3,150 Amp in Feb’26.

Set to expand footprint in both thermal and RE generation domains

* TPL aims to expand its total RE portfolio to ~6.3GWp by FY29 from ~2.1GWp currently operational (1.8GW contracted). In the 1QFY27 earnings call, management noted that TPL plans to commission 1.2GWp in FY27 and 1.4-1.6GWp in FY28. We model RE capacity additions of 0.6GW/0.9GW/1.2GW in FY27/FY28/FY29, materially enhancing scale and earnings visibility.

* Additionally, TPL has executed a PPA with MP Power Management Company (MPPMCL) for a 1.6GW coal-based thermal power project in Madhya Pradesh (set for commissioning in FY32).

* Despite significant capacity expansion, TPL’s balance sheet is robust, and the company is well positioned to continue to bid for new RE projects, targeting mid-to-high-teen equity IRRs

Strong distribution presence; AT&C losses way below peers

* In FY26, the transmission and distribution business contributed ~62% of EBITDA, with the licensed distribution business recording a distribution loss of only 2.3% with power availability of 99.9%. TPL’s distribution loss is significantly lower than that of Tata Power (5-19% in Delhi/Odisha), Adani Energy (~4%), and CESC (6-8% in Kolkata, Noida, and Chandigarh). TPL’s superior operational track record reflects its focus on rigorous metering, billing and collection practices, targeted loss-reduction investments and enforcement against theft, enabling it to convert a higher share of input energy into billed and collected units vs. competitors.

Valuation and view: Initiate with Neutral rating and TP of INR1,270

* TPL’s valuation is segmented across various business units: Licensed distribution business is valued at 2x Sep’28E regulated equity; franchisee distribution business is valued at 12x Sep’28E EBITDA; transmission business is valued at 2x invested equity; conventional generation business (regulated - thermal + gas) is valued at 2.5x Sep’28E regulated equity; DGEN plant (merchant) is valued at 12x Sep’28E EBITDA; Nabha is valued at 10x Sep’28E EBITDA; RE generation is valued at 12x Sep’28E EBITDA, and cash and investments add INR64/share. The sum of these contributions, adjusted for debt, results in a TP of INR1,270.

* TPL is currently trading at FY27E EV/EBITDA of 13.6x vs. its historical 1-year forward average of 8.4x EV/EBITDA. TPL’s EBITDA CAGR of 18% over FY26-28E compares with 25% for JSW Energy and 27% for Tata Power.

Key risks

1) Untied 1.6GW gas plants struggle against cheap coal/RE

2) volatility in gas prices due to forex fluctuations and geopolitical headwinds

3) changes in government policies (tariffs and regulations) could affect the company's financial outcomes

4) elevated execution risk due to large capex commitments across RE, pumped storage projects, planned greenfield thermal plant and brownfield thermal acquisition from L&T, where any delays or cost overruns could adversely impact cash flows and returns.

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