Tata Power: Q2 renewable gains partly offset by weak solar EPC

Résumé détaillé

Strong growth in renewable power generation lifted Tata Power’s Q2 operating profit, but weakness in solar EPC and rising debt remain concerns. Planned capacity expansion could unlock valuation upside, though execution risks persist.

Tata Power’s operating profit for the September quarter (Q2FY27) rose 11% year-on-year to ₹3,917 crore. But comparing this with the 26% revenue growth can be misleading, given the company’s diverse business mix. Its regulated power business, for instance, operates on a fixed return on equity (RoE) of 15.5%.

Profit from regulated operations moves in line with growth in regulated equity, making revenue growth and operating margins less relevant metrics. Investors should focus instead on Tata Power’s non-regulated businesses: renewable power generation, solar engineering, procurement and construction (EPC), and solar equipment manufacturing. These offer more meaningful comparisons with peers such as NTPC Green and Waaree Energies.

Renewable power generation was a bright spot, with operating profit rising 32% year-on-year to ₹1,061 crore, largely driven by a 25% increase in capacity to 7.1 GW. However, 11% load curtailment and transmission constraints remained dampeners. Battery energy storage solutions could help address curtailment.

Solar EPC, on the other hand, was a drag. Operating profit nearly halved to ₹180 crore in Q2, tempering the renewable generation business's strong performance. While rooftop solar projects, largely for residential use, did well, a sharp decline in large project orders hurt revenue and pulled down operating margin by 410 basis points year-on-year to 10%.

The solar equipment business, housed under TP Solar, has 4.3 GW of cell and module manufacturing capacity. Operating profit rose 10% year-on-year to ₹512 crore. Although module sales declined 19%, higher realizations and a better sales mix, with a larger share of sales to external customers, helped offset the weakness.

The Mundra power plant and the legal battle with Kleros Capital Partners remain two key overhangs. Under the supplementary power purchase agreement (SPPA), Tata Power has until 31 December to continue Mundra operations.

Kleros won its case in the Singapore International Commercial…

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