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This Tata company is riding the biggest megatrend today. Will investors profit from it?
Summary
- Tata Power has not only transformed itself into a renewable energy powerhouse but has also positioned itself at the forefront of India's energy transition. As it continues to lead the charge in the energy sector, can it sustain this momentum?
Over the past decade, if there’s one word that has become synonymous with business, it’s “renewables". Every major corporation, big or small, is rushing to claim its share of the green energy pie. But while many have merely dipped their toes, one company has gone all in—Tata Power. It has not only transformed itself into a renewable energy powerhouse but has also positioned itself at the forefront of India's energy transition.
So how did Tata Power, a company with over a century of history in traditional power generation, manage to pivot so successfully? And more importantly, what lies ahead for a company committing to 100% clean power generation by FY45?
Let’s dive into the story of Tata Power’s remarkable transformation.
From coal to clean energy
Tata Power was once heavily reliant on coal for its energy generation. In fact, like most power companies, a significant chunk of its power generation came from thermal sources.
The Indian power sector has seen its fair share of ups and downs over the past decade. For instance, between 2009 and 2020, the average plant load factor (PLF) of thermal power plants plummeted from 77.68% to 55.89%. Companies struggled to make efficient use of their assets, and cash flows dried up.
By April 2019, the outstanding dues of state government-owned discoms had ballooned to ₹21,198 crore, causing massive financial strain on power producers, including Tata Power.
Tata Power’s financial health took a hit during this period. Its net debt-to-equity ratio surged from 0.56 in 2009-10 to 1.17 in 2019-20. Consolidated profit after tax (PAT) tumbled from ₹1,967 crore to ₹1,316 crore in the same timeframe. To make matters worse, its share price plummeted by 17% between 2014 and 2019, leading to widespread investor pessimism.
To restore investor confidence and turn its fortunes around, Tata Power laid out a clear strategy—simplify business operations, divest underperforming assets, and focus on renewable energy and distribution.
Fast forward to 2024, and the company has made impressive strides in the renewable energy sector.
Today, it boasts a diversified portfolio of 14,707 MW, spanning the entire power value chain—right from renewable and conventional energy generation to transmission and distribution, trading, and even solar cell manufacturing.
As of today, Tata Power generates 5,847 MW from clean energy sources, accounting for 40% of its total capacity. The company’s plans don’t stop there. It aims to cut down its reliance on thermal energy to 30% in the next six years and eventually achieve carbon neutrality by 2045.
Green energy takes centre stage
The company is on a mission: reduce reliance on thermal energy to just 30% within six years and achieve carbon neutrality by 2045. This ambitious goal isn't just a corporate responsibility—it's a business strategy that’s paying off. Over the past five years, Tata Power’s share price has soared by over 667%, while its consolidated profit after tax (PAT) has tripled.
Tata Power's roadmap to success hinges on three key pillars:
⦁ Power generation: A significant push to expand renewable energy capacity.
⦁ Solar manufacturing: Investing in domestic production of solar cells and modules.
⦁ EV charging infrastructure: Aiming to lead in the burgeoning electric vehicle sector.
A $9 billion investment in renewables
Tata Power is doubling down on its renewable energy strategy with a bold plan to invest ₹700-750 billion ($8.3–$9 billion) over the next five to six years. The goal? To quadruple its renewable energy capacity from the current 5 GW to 20 GW by 2030.
As India aims to add at least 500 GW of clean energy by 2030 to combat emissions, Tata Power’s investments will play a critical role in this national effort.
For more such analysis, read Profit Pulse.
Expanding hydro and pumped storage projects
In addition to solar and wind, Tata Power is making strides in hydropower. The company is setting up the 600 MW Khorlochhu hydropower project in Bhutan and is eyeing more opportunities in the region. It has expressed interest in capturing 40-50% of the hydropower potential in Bhutan, as only 2.2 GW of the 10 GW agreed upon by India and Bhutan is currently under implementation.
Closer home, Tata Power is focusing on pumped storage hydro projects, with plans to add 2,800 MW of capacity by FY29. These projects will store energy by moving water between two reservoirs, providing a reliable power source during peak demand periods. The first 1,000 MW of these projects is expected to come online by the end of this year, with the remaining 1,800 MW to follow by mid-next year.
A focus on integrated renewable solutions
Tata Power is also working on customized solutions for round-the-clock power using a mix of solar, wind, battery storage, and pumped storage. This integrated approach ensures that Tata Power can provide consistent and reliable clean energy, reducing dependence on traditional power sources like coal.
The company’s thermal power plants currently account for 8.8 GW of its generation capacity, but Tata Power aims to achieve 100% clean power generation by 2045, making it a key player in India’s transition to a sustainable energy future.
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Leading the EV revolution
Tata Power is pivotal in India's evolving electric vehicle landscape, especially as the country experiences a surge in EV adoption. The synergy within the Tata Group is giving Tata Power a significant edge in the EV charging sector.
The Tata Group's integrated approach to electric mobility, with various companies working together, is creating a comprehensive EV ecosystem. Tata Motors, which commands a 70% share of India's EV market, collaborates closely with Tata Power, Tata Chemicals, and Tata AutoComp. This teamwork is driving India's green transition forward.
India's EV market has witnessed remarkable growth recently. In 2023, EV sales reached an impressive 1.62 million units, marking a substantial 50% year-on-year increase from 2022's 1.09 million units. This surge has significantly boosted EVs' overall market share in India's automotive sales, climbing from just 1.75% in 2021 to 6.38% in 2023. Clearly, Indian consumers are increasingly gravitating toward electric vehicles.
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Breaking down the numbers by vehicle type reveals varied growth rates. Two-wheelers and three-wheelers saw year-on-year growth of 35% and 64%, respectively, from 2022. However, the car and SUV segment is really making waves, with a staggering 117% surge. This is where Tata Power's role becomes crucial.
As the exclusive charging partner for Tata Motors, which accounts for over 70% of India's electric car sales, Tata Power is well-positioned to capitalize on this growth. In just four years since entering the charging space, Tata Power has established itself as the leader, commanding over 50% of public charging points in the country. They're not just dominating public charging—they've also captured about 40% of market share in home and fleet charging.
The numbers are impressive: Tata Power has energized 5,569 public and captive charging points, deployed 1,092 e-bus charging points, and covers 553 cities and towns. It has also installed a whopping 99,131 home chargers for four-wheeled EVs. This extensive network is crucial for supporting the growing number of EVs, especially SUVs, on Indian roads.
The growth in electric SUVs is particularly beneficial for Tata Power's business. SUVs typically require more powerful charging solutions due to their larger batteries. As more consumers opt for electric SUVs, the demand for robust charging infrastructure increases, aligning perfectly with Tata Power's strengths.
Solar rooftop and EPC business
Another segment where Tata Power is leading is the renewable push is solar rooftop and EPC. Tata Power is ramping up its efforts in the solar rooftop and EPC (Engineering, Procurement, and Construction) segments, two critical areas in the renewable energy landscape.
The solar rooftop business focuses on installing solar panels on residential and commercial rooftops, allowing users to generate their own electricity. EPC, on the other hand, involves the complete development of solar projects of different organisation, handling everything from design to execution.
Currently, Tata Power holds a 13.1% market share in the solar rooftop EPC sector. Over the last four years, India’s rooftop solar market has surged at a 17% CAGR, with 66% of installations directed towards commercial and industrial users.
While rooftop solar contributes a small portion of Tata Power's overall revenue, it’s on the rise, with revenue from this segment tripling to ₹787 crore in Q4 FY24.
Major investments ahead
In a strategic move, Tata Power signed an MoU with the Tamil Nadu government to invest ₹30 billion in a new facility aimed at producing 4 GW of solar cells and modules. This initiative is crucial as it allows Tata Power to reduce its reliance on imports and enhance the integration of its solar business. By producing solar cells domestically, Tata Power can streamline its supply chain and ensure more consistent quality and availability of materials for its solar projects.
Since becoming operational in FY24, this module plant has already generated over ₹10 billion in revenue, along with a ₹0.54 billion profit after tax in Q1 FY25. The cell production line aims for 2 GW capacity by August 2025, positioning Tata Power among India’s top integrated solar manufacturers.
Future ambitions
Tata Power is also targeting the PM Surya Ghar Program, which aims for over 100,000 rooftop installations. With the government looking for nearly 10 million installations in the coming years, Tata Power is well-positioned to play a leading role.
Currently, Tata Power manages over 5 GW of utility-scale renewable projects and nearly 3 GW of third-party EPC projects. Its solar EPC order book stands at over ₹156 billion, indicating strong demand. In Q1 FY25 alone, Tata Power secured 225 MW of new utility-scale solar orders worth ₹9.3 billion.
Powering India’s green future
Tata Power has come a long way from its coal-dependent past. Its strategic pivot towards renewable energy, supported by the broader Tata Group’s green initiatives, has not only helped it survive a challenging decade but has also positioned it as a key player in India’s clean energy transition. With a clear commitment to achieving 100% clean power generation by FY45 and reducing thermal energy dependence, Tata Power is not just riding the renewable wave—it’s helping to shape it.
The stock markets have taken note…
Over the past year, its share price has surged by 78.8%, vastly outpacing the Nifty 50’s modest 26% growth. But the story doesn’t end there. Over the last five years, Tata Power’s stock has skyrocketed by an astonishing 634%, while the Nifty 50 has only managed a growth of 108%. That’s a staggering six-fold outperformance!
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Currently, the company trades at a P/E ratio of 36.8 compared to its 10-year median P/E of 23.7x. This reflects strong investor confidence. But as Tata Power continues to lead the charge in the energy sector, the big question remains: can it sustain this momentum? With its impressive track record, it’s clear that Tata Power isn’t just keeping pace; it’s setting the pace.
Disclosure: We have relied on data from www.Screener.in throughout this article. Only in cases where the data was not available, have we used an alternate, but widely used and accepted source of information.
The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educative purposes only.
Sonia Boolchandani is a seasoned financial content writer with over four years of experience in delivering clear, engaging, and insightful content on various financial topics. Her work is driven by a passion for helping readers understand and make informed decisions in the financial world, bridging the gap between industry intricacies and reader-friendly explanations.
The writer and his dependents do not hold the stocks/commodities/cryptos/any other asset discussed in this article.
