Tata Power - Disappointment again; this time its coal... - ICICIdirect

Lower margins in Bumi Resources (higher cash cost per tonne), losses in Mundra and Maithon (on account of sub-optimal PLFs), higher tax out go were the key highlights of Tata Power Q1 FY13 earnings. The company reported profit of Rs146 crore. Adjusted profit for the quarter after adding forex loss of Rs45 crore and one time income reversal of Rs155 crore in standalone entity was Rs315 crore. We maintain our Hold rating on the stock.

Other highlights during the quarter

Tax as a % of PBT for the quarter was 54% due to absence of offset between Coal SPV and loss making Mundra and Maithon projects. Maithon reported losses mainly on account of PLFs and boiler shutdown while Mundra reported higher losses on account of front loading of port costs. The effect of tariff hike in NDPL will be reflected in Q2 FY13 results onwards. Cash cost per tonne of coal was $48.9/ tonne (which was higher than our expectations).

Maithon unit stabilising ; Mundra will be in losses

There has been improvement in Maithon unit PLFs post the boiler shutdown. 750 MW (out of 1050 MW) would be sold under PPA while remaining at merchant rates. Logistics is an issue for the project but we expect improvement from here. Viability of Mundra project hinges on tariff hikes accepted by beneficiaries (40 paise hike for breakeven). Management guided for Rs40 crore per month loss for the project in FY13.

Valuation Hold ; Re- rating hinges on tariff increase in Mundra

We maintain our Hold rating on the stock as 1) Company is incurring ~60 paise / unit loss in Mundra 2) No significant profitable capacity addition in till FY14 3) Higher tax rates (in absence of merger between Indonesian subsidiaries and Mundra UMPP). The re-rating for the stock would depend on 1) Tariff increase in Mundra 2) Reversal on provision due to decline international thermal coal prices and 3) decline in cash costs in Bumi Resources.

Source : Equity Bulls

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