Tata Power is Hot. Here's What's Behind its Electrifying Performance

Tata Group shares have been on a roll for the past couple of weeks. Majority of Tata stocks have gained in the range of 25-50% in the recent run up.

Among these stocks, Tata Power shares have been also on a dream run. Tata Power shot up 70% in the last one month on the back of spurt in volumes and the bull run in the stock market.

Tata power also touched its 52-week high of Rs 269.7 on 18 October 2021. In the past one year, the company's share price has surged 314%.

What's driving the rally?

Let's take a look at the possible reasons for the rise in the share price of Tata Power in detail...

India's electricity demand picks up pace

India's electricity demand grew 4.9% during the first half of October, with supply falling short of demand by 1.4.

This despite a 3.2% rise in coal-fired generation and 30% rise in solar output, a Reuters analysis of government data showed.

Increased economic activity after the second wave of the coronavirus has driven up electricity demand, resulting in a supply deficit due to a coal shortage. However, recently the government has assured of adequate coal supply.

Due to this, the growing urban population is trying to shift their focus towards affordable, clean, and reliable power supply in the future. This has led to a huge scope for continued growth in the power sector.

Company's contribution towards renewable energy

Tata Power is the country's largest renewable power company with renewable power capacity of 2.6 gigawatt (GW) in 11 states.

The company plans to take its renewable production to massive 15 GW by 2025.

Renewable power currently accounts for 30% of total capacity, while the target is to take renewable capacity to 80% by 2030.

Also, recent orders and deals bagged by Tata Power in the solar power segment has pumped up the stock.

Recently, Tata Power Solar, a subsidiary of Tata Power, has secured orders to install 100 megawatt (MW) of distributed generation (DG) capacity in Maharashtra on behalf of state-run energy efficiency services (EESL).

The subsidiary has also received a Letter of Award (LoA) regarding the engineering, procurement, and construction (EPC) works for several projects worth Rs 5.4 bn.

Back in June 2021, Tata Power Solar also received EPC orders for Rs 6.9 bn from NTPC to set up solar photovoltaic (PV) projects.

It's also expected that the Solar EPC target would increase the size of this business by 10 times.

Tata Power plans to raise funds for the IPO of its renewable energy unit

Tata Power is in talks with large pension and sovereign asset managers, including Canada pension plan invest board (CPPIB) and government of Singapore investment (GIC), to raise at least US$500 m ahead of the proposed initial public offering (IPO) for its renewable energy unit.

According to Economics Times, some bulge-bracket funds from the US and sovereign funds from the Middle East are also exploring investments in Tata Power Renewables. Tata Power is understood to be working with Moelis & Co. to run a formal process to find a buyer, the report said.

The company has also explored the option of setting up a renewable energy infrastructure investment trust (InvIT) with its operational power assets.

Tata Power acing the EV race

The stock has been on a roll recently due to various orders and transactions taking place in the electric vehicle (EV) charging stations segment.

In India, there are approximately 70,000 petrol pumps that serve as the backbone of the country's transportation industry.

How many charging stations would India require in the not-too-distant future when cars are powered by electricity?

There is no obvious answer, but Tata Power, the firm that has taken the lead in establishing charging stations around the country, is pushing forward.

Currently, the company has installed 961 charging stations. By the end of this financial year, it hopes to more than double that number to 2,000 charging stations. And in 5 years, it wants that number to swell five times.

Earlier this month, TVS Motor said it has entered into a strategic partnership with Tata Power to set up electric vehicle charging infrastructure across the country.

The partnership aims to create a large dedicated electric two-wheeler charging infrastructure to accelerate electric mobility in India.

Also, the company's shares surged on Tata Motor's recent EV announcement as the Tata Group's power utility is in a partnership with Tata Motors to develop EV charging infrastructure.

To know more about Tata Power's development in EV segment, check out our article here: How Tata Power is Riding the EV Opportunity Without Making Any Cars.

Equitymaster's view on Tata Power

We reached out to Rahul Shah, Co-Head of Research at Equitymaster, for his view on the company right now.

Here's what he has to say...

• Although the future prospects look good, the sharp run up in the stock price over the last few months seems to have captured a lot of that upside. In fact, in our view, the markets may have overdone the bullishness a bit.
  
  Thus, if you have not invested in the stock already, it may be a good idea to stagger your purchase and not buy everything in one go.
  
  After all, it pays to be conservative if one has any doubts about the valuation of a stock.

How the stock markets reacted to Tata Power

Shares of Tata Power opened the day at Rs 234 on the BSE and the NSE.

Its share price closed at Rs 225.9 (down 2%) on the BSE and Rs 226 (down 1.9%) on the NSE.

At its current price, it is trading at a P/E of 123.3.

The share touched its 52-week high of Rs 269.7 and 52-week low of Rs 51.7 on 18 October 2021 and 29 October 2020, respectively.

Over the last 30 days, the Tata Power share price is up 70%. Over the last one year, the company's share price is up 314%.

About Tata Power

Tata Power, a Tata Group company, is involved in the generation, distribution, and transmission of power. It has a license for bulk supply of electricity in the city of Mumbai.

The company supplies power to BEST in the Mumbai license area. Besides, it supplies to retail consumers including high-tension (HT) industrial and commercial consumers in Mumbai.

Erstwhile known as Tata Electric, the company pioneered the generation of electricity in India nine decades ago. The company started as Tata Hydroelectric Power Supply Company in 1911.

It got its new status with the amalgamation of two entities viz, Tata Hydroelectric Power Supply Company and Andhra Valley Power Supply Company in 1916.

Today, it's India's largest private power utility.

For more details about the company, you can have a look at Tata Power's factsheet and quarterly results on our website.

You can also compare Tata Power with its peers.

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Tata Power vs Adani Power

Tata Power vs Power Grid

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...