Tata Power and Adani Power, through market capitalization, have shown a strong performance across the past few years, especially, delivering superlative profits to investors. Despite this, the future of renewable energy stocks, which are now having their valuations high after the recent climb to the ground, is still unclear. Which of these top performers has the possibility to be the one that will continue to fuel gains in the long run?

Energy Giant

The two brands have gone through major changes in the past period, so much so that they look like completely different entities from where they stood a decade ago. Tata Power forsakes their initial coal option and reaches for greener sources, namely solar and wind. It has added more capacity through acquisitions and is currently into the design phase of the larger scale renewable projects. Adani Power too is to venture into other sectors by means of discontinuing exclusively purely coal plants. It focuses immensely on solar, wind technologies and other sustainable resources. Their target is to enter the range of the world largest renewable energy producers.

ADIA’s stock price has surpassed all the previous stock market traders. It has moved swiftly for a year registering an increased price almost four times. Seemingly, all the same, analysts warn that these stock prices could be higher than Tata Power these days. However, even though Tata Power’s stock is on the high side of its all-time high, the price may still be considered to be more affordable than most stocks depending on the basis of price earnings ratio (e.g., relative to earnings). Adani Power’s stagnation is also attributable to the issue of recent price levels, which could become limiting factors to further short-term rises.

The spot remains favourable for both the enterprises with India’s electricity demand wilting at lightning pace due to high growth rate in the economy. The benefits Tata Power and Adani Power have gained from their coal-based portfolio have positioned them at the forefront to exploit the possibilities that lie in the areas of solar, wind, green hydrogen and energy storage. Nevertheless, Tata Power may come with much safer options when the long-term investors are taken into consideration. It has higher and predictable cash flow due to the diversified portfolio and also today it is on an attractive price level compared to Adani Power.

Only time will tell which company emerges as the bigger winner in powering India’s clean energy future. But for investors looking for a solid play in the growing renewable sector, Tata Power’s shares at current levels may deliver stronger returns supported by both business expansion and valuation comfort over the coming years.

Let’s take a deeper look at both companies:

Tata Power 

  • One of India’s largest integrated power companies with a renewable capacity of over 12 GW
  • Presence across the entire power value chain from generation to transmission to distribution 
  • Acquired renewable projects from Bharti Group, Welspun Group to expand green capacity 
  • Executing large solar and wind projects worth over $5 billion 
  • Trading at a one-year forward PE of around 25x versus 40x a few months back
  • Strong balance sheet with net debt-to-equity of under 1x 
  • Pays regular dividends with a dividend yield of over 3%
  • Targets 50% of generation capacity from renewables by 2030

Adani Power

  • Largest private thermal power producer but now shifting focus to green energy 
  •  Added over 1 GW of solar projects in FY23, taking total renewable capacity to 3 GW
  • Plans to ramp up solar and wind capacity to 25 GW by 2025 at a cost of $20 billion 
  • Recently acquired SB Energy India from SoftBank for $3.5 billion
  • Trading at one-year forward PE of around 12x
  • Net debt-to-equity of over 3x but gradually improving as debt reduces
  • Yet to announce a dividend policy but may start once balance sheet strengthens
  • Aims to become the world’s largest renewable energy company by 2030

Both enterprises are likely to be located in the field with a huge investor of the future – this industry has great potential for long-term rebound. However, for investors who are sensitive to downside risk as well as stability, Tata Power’s integrated business model, and attractive valuation could give it a slight advantage as a more secure way of participating in India’s renewable energy revolution. Certainly, the equity as well provides the benefits of a solid solvency rate and an unrelenting dividend distribution.