Tata Power's Q3 Performance Overshadowed by Mundra Plant Woes
Tata Power Co. Ltd has reported a challenging December quarter (Q3FY26), with its consolidated financial results significantly impacted by the continued shutdown of its Mundra power plant. The company's shares fell approximately 3% following the announcement, reflecting investor concerns over persistent operational hurdles.
Financial Highlights and Mundra's Impact
The company's adjusted EBITDA, excluding one-off regulatory income, declined by 9% year-on-year to ₹3,100 crore. Revenue similarly decreased by 9% to ₹13,900 crore. This downturn is primarily attributed to the Mundra plant, which has been non-operational since July due to commercial unviability under its current power purchase agreement (PPA).
The Mundra segment, including associated coal and shipping businesses, reported an EBITDA-level loss of ₹145 crore in Q3FY26, a stark contrast to the ₹809 crore profit recorded in the same period last year. The plant's PPA does not permit fuel cost pass-through, making operations economically unsustainable at current fuel prices. Notably, the facility was operational last year under a temporary central government directive that allowed such pass-through arrangements.
Tata Power has been engaged in discussions with consuming states since July to establish a supplementary PPA that would enable fuel cost recovery. However, a resolution remains pending, though the company anticipates reaching an agreement in the near future.
Strong Performance in Other Business Segments
Despite the Mundra setback, Tata Power's renewable energy and transmission & distribution (T&D) segments demonstrated robust growth. The renewables business achieved a remarkable 66% increase in EBITDA to over ₹1,600 crore, driven by the full-capacity operation of its integrated solar cell and module manufacturing plant.
Encouraged by this rapid scaling, Tata Power is planning backward integration into ingot wafer manufacturing and is evaluating potential sites along with available state incentives. The solar engineering, procurement, and construction (EPC) division saw revenue growth of 38%, though EBITDA increased only 7% with a margin contraction of nearly 500 basis points to 11.2%, due to higher execution of in-house projects. Margins may remain under pressure in Q4 and FY27 as the company focuses on meeting captive requirements.
The T&D segment experienced a substantial 58% EBITDA growth to ₹2,021 crore, bolstered by improved performance in the Odisha distribution business. Since Tata Power assumed management as a joint venture partner with the Odisha government in FY21, the segment has shown consistent enhancements in billing efficiency and reductions in distribution losses, highlighting the benefits of discom privatization. The T&D business now contributes over half of Tata Power's total EBITDA, up from 37% a year ago.
Market Reaction and Future Outlook
Tata Power's stock has remained largely flat over the past year, weighed down by Mundra's underperformance. The company currently trades at an enterprise value of 10.7 times FY27 estimated EBITDA, according to Bloomberg consensus, suggesting limited potential for a near-term re-rating.
Nuvama Institutional Equities noted in a February 4 analysis that most positive factors appear priced into the current market valuation, while losses from Coastal Gujarat Power Ltd (Mundra) may persist even after a resolution, expected by February-March 2026. The brokerage emphasized that Tata Power's growth narrative is likely to materialize over FY28-30, as renewable energy and pumped hydro storage projects come online, targeting a profit after tax of ₹10,000 crore by FY30.
The company is actively investing to expand its generation capacity from approximately 16 GW to 26 GW, though about half of these projects are back-ended. This strategic expansion underscores Tata Power's commitment to long-term growth in the evolving energy landscape, even as immediate challenges at Mundra continue to cast a shadow over quarterly results.
