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Research
Tata Power - On the right path - Edelweiss
Posted On : 2012-08-11 07:08:12( TIMEZONE : IST )
Tata Power (TPC) posted Q1FY13 adjusted PAT of ~INR4.7bn (our/ consensus profit estimates INR5.2bn/INR4.3bn) largely on account of ~INR1bn of front-ended costs at Mundra UMPP as well as in coal companies ~INR1bn, forex loss of INR452mn and INR1.2bn reversal of tariffs in Mumbai licence area. Management expects benefits on higher blending and cost rationalisation at Mundra and Maithon (once fully operational) and scale up at coal mines to improve profitability. Maintain 'BUY' with TP of INR120/share.
Earnings lower on front ending of costs, Mumbai tariff reversal
TPC's standalone Q1FY13 PAT of INR3.1bn was higher on account of higher treasury income and dividend from coal subsidiaries offset by INR1.6bn of revenue reversal on recent MERC regulations; adjusting for which, PAT at INR2.4bn was in line. However consolidated PAT at INR1.5bn was lower largely on account of higher-than-expected losses at Mundra UMPP (due to higher stabilisation/front ending of costs, fixed takeor-pay costs for port/ships). Lower realisation of USD84/t (USD94/t in Q1FY12), higher cash cost of USD48.9/t (USD40.2/t Q1FY12) due to upfront leasing /demurrage charges and higher amortisation of deferred costs capitalised at KPC/Arutmin mines dented profits of coal companies. Further, Maithon (1,050MW operational now) posted a loss of INR178mn as unit 1 boiler faced some problems during the quarter.
Outlook and valuations: Positive; maintain 'BUY'
Management has been largely successful in restricting losses at Mundra's first unit to ~INR700mn in Q1FY13 through 70% ecocoal blending, leading to only INR5bn of annual loss in FY13. Earnings from Maithon project and volume scale up at coal mines are expected to improve earnings going ahead. TPC is working on ~6GW pipeline projects, of which ~10% are expected by FY15 at Kalinganagar. We have cut our FY13 earnings by 39% to factor in higher cash cost/upfront leasing costs in coal companies and frontending of costs in Mundra UMPP. At CMP of INR101/share, the stock is trading at 1.8x and 1.6x FY13E and FY14E consolidated BV, respectively. Maintain 'BUY/SO' rating with SOTP based TP of INR120/share.
