Tata Power Company - Subsidiaries dampen standalone outperformance - IDBI Capital

Summary

- Standalone earnings 42%/21% ahead of our and consensus estimates due to higher dividend income from coal SPV

- Consolidated APAT declined 11% YoY largely on account of loss making operations at CGPL and Maithon

- We cut our earnings by 7%/3% for FY13/FY14E due to change in coal production cost

- Maintain BUY with an unchanged TP of Rs116. At CMP, the stock trades at 1.5x/1.4x on our FY13E/FY14E book value; 14.9x/19.6x FY13E/FY14E earnings

Result Highlights

High dividend from coal SPV led standalone earnings beat

TATA Power Company Ltd. (TPWR) reported standalone revenue 10%/4% ahead of our and street estimate at Rs22.8bn (+19% YoY/-4% QoQ) due to 11% higher than expected net generation in Q1FY13. 40% YoY/10% QoQ jump in fuel cost coupled with 7% higher than estimated power purchase cost led EBITDA margin fall of 581bps YoY/293bps QoQ to 16.5% (IDBIest. 21.5%). Consequently, EBITDA at Rs3.8 bn was 16%/14% below our and street estimates for Q1FY13. High dividend income and treasury income led to other income at Rs2.9 bn (+177% QoQ/+12% YoY). Moreover, companys tax payment declined 22% YoY due to tax shield on revenue reversal of Rs1.6 bn in Q1FY13. Consequently, APAT of Rs2.3 bn came 42%/21% ahead of our and Bloomberg estimates.

At consolidated level, TPWRs revenue increased 25% YoY to Rs72.5 bn, 6% ahead of consensus. However, APAT declined 11% YoY largely on account of high coal production cost led by heavy rainfall.

Lower realization offsets higher coal volume

Despite 7% higher volume and currency depreciation, coal business reported only 14% YoY revenue growth due to 11% YoY drop in realization in Q1FY13. Total coal sold from Indonesian coal mines stood at 16.4MT vs. 15.3MT in Q1FY12. Realization declined 11% YoY to US$84/tone in Q1FY13. Moreover, due to high rainfall, cash cost of coal production jumped 21% YoY to ~US$49/tone. Consequently, PBIT declined 66% YoY in coal business. Power segment reported strong revenue growth of 30% YoY largely due to commencement of operation of CGPL (0.8GW) and Maithon (0.5GW). However, both these power subsidiaries made losses in their respective operations, which led to 8% YoY decline in Power business profitability.

Outlook and Valuation

TPWR has reported strong numbers at standalone level on account of sound operational performance in Q1FY13. However, due to loss making operations at CGPL and Maithon, performance disappointed at consolidated level. With both the units stabilized and infrastructure getting ready at site to source fuel, Maithon (1.1GW) would turn profitable in FY13 itself. However, CGPL would continue to make losses till tariff hike is agreed upon. Currently, CGPL needs Rs0.4/unit tariff hike to break even. TPWR is in discussion with beneficiary states. If no solution is worked out, CERC would look into the matter and arrive at final decision over tariff hike. Due to reasonable ask from TPWR, decision could turn in its favor. We maintain our positive view on stock with an unchanged TP of Rs116. Maintain BUY. At CMP, the stock is trading at 1.5x/1.4x on our FY13E/FY14E book value; 14.9x/19.6x FY13E/FY14E earnings.

Source : Equity Bulls

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