How Indonesia’s coal export tax could dent Tata Power’s earnings by 5%

Synopsis: Morgan Stanley flagged Indonesia’s 1–5% coal export tax from Jan 2026, which could reduce Tata Power’s FY27–28 EPS by 4–5% if fully absorbed, though miners may pass costs to customers.

The company is primarily involved in the business of the generation, transmission and distribution of electricity also aims to produce electricity completely through renewable sources is now in the focus after Indonesian government announced that, it will impose a 1% to 5% tax on coal exports effective from Jan 1, 2026. With market capitalisation of Rs. 1,19,937 cr, the shares of Tata Power Ltd are currently trading at Rs. 375 per share, down from its previous close of Rs. 378.35 per share.

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Morgan Stanley has highlighted that from Indonesia, where the government has announced that a new tax on coal exports will come into effect from January 1, 2026. Under this policy, coal exports will attract a levy ranging from 1% to 5%, depending on the type and pricing of coal.

Indonesia is one of the world’s largest coal exporters, and this move could have meaningful implications for global coal supply chains and pricing dynamics. According to Morgan Stanley, in the current demand and pricing environment, if the additional cost from the export tax is fully absorbed by buyers and not passed on, Tata Power’s earnings could face pressure.

The brokerage estimates that Tata Power’s earnings per share (EPS) for FY27–FY28 could be impacted by around 4–5% under such a scenario. This reflects the company’s exposure to imported coal for its power generation operations. However, Morgan Stanley also told that coal miners may attempt to pass on the impact of the export tax to customers through higher prices.

About the company 

Tata Power Company Ltd is one of India’s largest integrated power companies, with a strong presence across the entire power value chain, including generation, transmission, distribution, and renewable energy.

Part of the Tata Group, the company operates a diversified portfolio spanning thermal, hydro, solar, wind, and distribution businesses, with a growing focus on clean and sustainable energy solutions.

The company reports a ROCE of 10.8% and ROE of 11.0%, has delivered strong profit growth at a 45.5% CAGR over the past five years, and maintains a healthy dividend payout ratio of 18.9%.

On a year-on-year basis for the Q2FY26. Revenue stood at Rs. 15,545 crore, marginally lower than Rs. 15,698 crore in Q2FY25, reflecting a 1% YoY decline. EBITDA rose to Rs. 3,302 crore from Rs. 3,271 crore, registering a 1% YoY growth. Net profit increased to Rs. 1,245 crore from Rs. 1,093 crore, marking a strong 14% YoY growth, while EPS slipped slightly from Rs. 2.90 to Rs. 2.88, a 1% YoY decline.

Written by Manideep Appana

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