Tata Power: Will the Mundra Plant become profitable after shutting down for more than 6 months? 

Synopsis: Tata Power’s execution of the Supplementary Power Purchase Agreement (SPPA) with Gujarat marks a critical step toward resolving operational challenges at its Mundra plant, which had faced temporary suspension.

 With similar agreements expected across multiple states, the development strengthens the plant’s revival prospects, significantly reducing losses and improving earnings visibility. Combined with strong distribution performance and renewable expansion, this positions the company for a structural turnaround.  

The shares of Tata Power Company ltd majorly engaged in the business of  generation, transmission and distribution of electricity has the market capitalization of Rs. 1,24,331 Crores were trading at around Rs.  389 per share which is at 7 percent discount from its 52 weeks high of Rs. 418 per share and is trading at a P/E of 34.5 where as industry P/E stands at 24.3 

SPPA Execution & Operational Revival

The company has executed a Supplementary Power Purchase Agreement (SPPA) for the Mundra power plant with Gujarat (GUVNL), after the temporary suspension of the Mundra plant’s operation. This is a significant step towards resolving the long-persisting viability problems of the Mundra power plant. Significantly, it is also proposed to enter into similar agreements with Maharashtra, Rajasthan, Punjab, and Haryana, which will help to stabilize the operation of the Mundra plant in a more sustainable manner.

Significant Reduction in Losses

The Mundra plant has been incurring losses to the tune of Rs. 1,700-1800 Crores annually. However, with the implementation of SPPA and its potential adoption in other states, the losses would reduce by almost 75%. This would have a positive impact on the plant’s profitability.

Earnings Upgrade Potential

The significant decline in losses may result in a revised estimate of FY27/28 PAT in the range of 4.5-5.5%, as emphasized by MOSL. This indicates the impact of Mundra’s turnaround on Tata Power’s consolidated earnings.

Strong Core Business Performance

Apart from Mundra, the company continues to derive support from strong performance in its Odisha and Delhi distribution businesses, which provide a solid foundation of stability in terms of cash flow and operational resilience.

Renewables & Backward Integration Strategy

The company is growing aggressively in the renewable segment, especially in rooftop solar, and at the same time, it’s planning to set up a manufacturing capacity of 10GW in ingot and wafer form. This backward integration also gives Tata Power greater control over margins and reduces dependence on third-party vendors.

Future Growth Catalysts

Other growth drivers include opportunities such as discom privatization, e.g., in Uttar Pradesh, and a strategic focus to increase owned renewable energy capacity, especially in a scenario where there is a decline in third-party EPC installations.

Valuation Upside (MOSL View)

MOSL maintains a target price of Rs. 455, implying an upside of 18% from the current price Rs. 388, supported by improving Mundra economics and strong renewable-led growth visibility. 

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