Torrent Power renewable expansion and low distribution losses support long-term earnings growth

Investment View and Valuation

Motilal Oswal Financial Services initiated coverage of Torrent Power in its September 2026 report. The broker views Torrent Power as an integrated utility with operations across generation, transmission and distribution, supported by diversified assets, a strong distribution operating record and a substantial renewable-energy pipeline.

Motilal Oswal initiated coverage with a Neutral rating and a sum-of-the-parts target price of Rs 1,270, implying 4 per cent upside from the report CMP of Rs 1,220. The Neutral stance reflects limited near-term valuation upside despite the company’s long-term growth opportunities.

Asset Base and Operating Footprint

Torrent Power had 6.6 GWp of installed generation capacity at the end of Q1 FY27, comprising about 4.5 GW of thermal capacity and about 2.1 GWp of renewable capacity, of which approximately 1.8 GW was contracted.

The company also has a 6.1 GW thermal portfolio, including 4.5 GW operational and 1.6 GW under development, alongside a renewable portfolio of about 6.3 GWp including pipeline projects. Its distribution footprint covers about 2,050 square kilometres of licensed areas and 1,007 square kilometres of franchisee areas. Transmission assets include 355 km of 400 kV lines and 128 km of 220 kV lines.

Distribution Business Strength

The broker highlights the distribution business as a key strength. In FY26, transmission and distribution contributed about 62 per cent of EBITDA. Licensed-distribution losses were only 2.3 per cent, while power availability was 99.9 per cent.

Motilal Oswal attributes this performance to metering, billing and collection discipline, targeted loss-reduction investment and theft enforcement. The broker expects licensed and franchise distribution businesses to grow at a mid-teen rate.

Potential wins from proposed distribution reforms, including Uttar Pradesh privatisation, are not included in estimates and could provide upside.

Renewable Expansion and Financial Outlook

Renewable expansion is the main medium-term earnings driver in Motilal Oswal’s model. Management indicated planned commissioning of 1.2 GWp in FY27 and 1.4 GWp to 1.6 GWp in FY28. The broker models renewable additions of 0.6 GW, 0.9 GW and 1.2 GW in FY27E, FY28E and FY29E, respectively, taking contracted renewable capacity to 4.5 GW by FY29.

Motilal Oswal estimates renewable EBITDA CAGR of 44 per cent over FY26 to FY29E, with renewable EBITDA margins above 81 per cent during FY27E to FY29E. Renewable generation is forecast to account for about 37 per cent of FY29E EBITDA. Overall EBITDA and adjusted PAT are forecast to record CAGRs of 17 per cent and 7 per cent, respectively, over FY26 to FY29E.

Long-Term Growth Projects and Capital Expenditure

Longer-term growth visibility also comes from the acquired 1.4 GW Nabha coal plant, which is fully tied up with Punjab State Power Corporation; a 1.6 GW Madhya Pradesh coal project under a 25-year PPA that is expected to commission in FY32; and a 3 GW pumped-storage project targeted for FY30.

The broker estimates cumulative capex of about Rs 37,700 crore over FY27E to FY29E for renewable projects, thermal generation, pumped storage and transmission. This raises forecast net debt to EBITDA from 2.3 times in FY26 to 3.8 times, 4.4 times and 4.4 times in FY27E, FY28E and FY29E, respectively.

Sum-of-the-Parts Valuation

Motilal Oswal values Torrent Power using a sum-of-the-parts approach. Its valuation framework comprises:

• 2 times September 2028E regulated equity for licensed distribution.
• 12 times EBITDA for franchisee distribution and renewable generation.
• 2 times invested equity for transmission.
• 2.5 times regulated equity for conventional generation.
• 10 times EBITDA for Nabha.
• 12 times EBITDA for DGEN.

Cash and investments add Rs 64 per share before debt adjustment.

Key Risks and Valuation Context

• Weak competitiveness of 1,567 MW of untied gas capacity.
• Gas-price and foreign-exchange volatility.
• Regulatory and tariff changes.
• Margin pressure in renewable bids.
• Execution or cost-overrun risks across the large capex programme.

The broker also notes that Torrent Power trades at FY27E EV to EBITDA of 13.6 times, above its historical one-year forward average of 8.4 times.