Torrent Power renewable commissioning and Nabha acquisition underpin FY27 earnings growth

Investment View and Target Price

Geojit Investments Limited upgraded Torrent Power Ltd. to BUY in its June 3, 2026 report, with a 12-month target price of Rs 1,638 per share versus a CMP of Rs 1,424. The constructive view is based on Torrent Power’s strong distribution asset base, growing renewable portfolio, expected renewable project commissioning and the planned consolidation of Nabha Power from Q1FY27.

Geojit expects revenue to grow at a 10.6 per cent CAGR over FY26 to FY28E and earnings at a 12.8 per cent CAGR. The broker also sees the new tariff framework potentially improving return on equity from distribution assets by 100 basis points, subject to performance milestones.

Business Overview and FY26 Performance

Torrent Power is an integrated utility operating across generation, transmission and distribution, with operations in Gujarat, Maharashtra, Uttar Pradesh and Karnataka. FY26 consolidated revenue from operations was about Rs 29,000 crore, down 0.7 per cent year on year, affected by lower generation and subdued DISCOM offtake.

Gross profit increased 9 per cent year on year to Rs 8,374 crore and gross margin expanded 258 basis points, aided by a 2 per cent reduction in power-purchase costs and a 19 per cent decline in fuel expenses. PBDIT rose 5.4 per cent to Rs 6,125 crore, with margin improving 122 basis points to 21.1 per cent. Distribution profitability drove this improvement, with segment margin expanding 197 basis points, partly offset by lower profitability in generation and renewable businesses and higher other expenses.

FY26 PBT rose 2 per cent to Rs 3,317 crore as lower finance costs largely offset higher depreciation and lower other income. Reported PAT declined 19.3 per cent to Rs 2,469 crore because of higher tax expense, while adjusted PAT increased 14.5 per cent to Rs 2,560 crore after non-recurring items.

In Q4FY26, sales declined 0.8 per cent year on year to Rs 6,406 crore, while EBITDA increased 1.7 per cent to Rs 1,149 crore and EBITDA margin improved 43 basis points to 17.9 per cent. Q4FY26 adjusted PAT was Rs 435 crore, down 1.2 per cent year on year.

Nabha Power Acquisition and Fuel Availability

Management expects the Nabha Power acquisition to close in Q1FY27. Nabha Power operates under a two-part tariff model with 25-year power purchase agreements with Punjab State Power Corporation.

Management stated that gas availability is not a concern for summer demand. Torrent Power contracted three LNG cargoes, of which two had been received and one was expected in June; the cargoes are sourced outside the Strait of Hormuz. BP and JERA contracts are expected to become available from CY2027, with spot cargoes bridging the interim period.

Renewable Expansion and Execution Outlook

Management expects FY27E to be capex-heavy and has guided for commissioning of 1.2 GW to 1.4 GW of renewable capacity during FY27. Grid connectivity is in place for most projects, although transmission timelines remain an execution dependency.

Geojit identifies timely renewable-project execution as the key monitorable. Higher renewable commissioning and elevated leverage could pressure bottom-line performance. Geojit’s estimates imply debt-to-equity rising from 0.7 times in FY26 to 1.0 times in FY27E and 1.3 times in FY28E.

Geojit Financial Forecasts

FY27E revenue and EBITDA estimates were reduced by 6 per cent and 2 per cent respectively, but adjusted PAT and EPS were raised by 8 per cent and 7 per cent. The upward revision was supported by a 104-basis-point increase in the EBITDA margin forecast to 22.1 per cent.

Valuation and Key Risks

The Rs 1,638 target price is based on a sum-of-the-parts valuation. Geojit values the FY28E generation, distribution and renewable businesses at 7 times, 9 times and 12 times EV/PBDIT respectively.

The valuation also includes discounted cash flow values for the pumped-storage project, Torrent Power-PGCIL joint venture and Madhya Pradesh thermal project, while deducting FY28E debt of Rs 30,477 crore and minority interest.

Key factors that could weaken the thesis are delays in renewable and transmission execution, as well as pressure on profitability from higher commissioning-related costs and leverage.