Tata Power - Bottom line hit by impairment charges, Adjusted PAT in line with expectation - IndiaNivesh

Tata Power reported a net loss of Rs.3.28 bn hit by Rs. 6 bn of impairment charges for Mundra project (due to change in the long-term Rupee/dollar exchange outlook). Further, lower realisation from coal business due to lower international prices, higher depreciation and interest cost also dragged down the bottom line. However, Adjusted PAT (excluding impairment cost) comes at Rs. 2.71 bn, in line with street expectation of net profit Rs. 2.70 bn. Revenue for the quarter increased 36% y-o-y to Rs 90.39 bn vs. consensus of Rs. 80.16 bn helped by 64% y-o-y revenue growth in power business which is partially offset by 9% decline in revenue from coal business. Power revenue grew on the back of higher power sales (up 2% y-o-y to 3998 units), increase in tariff and higher revenue of TPDDL (Tata Power Delhi Distribution Ltd.) due to higher power purchase cost along with higher incentives due to lower aggregate technical and commercial(AT&C) losses. EBITDA margins improved 546 bps y-o-y to 20.5% due to lower fuel cost and other expenses. Company reported forex loss of Rs. 860 mn during the quarter vs. Rs 3.87 bn profit in Q3FY12.

EBITDA margin improved due to lower fuel cost

EBITDA margins improved by 546 bps y-o-y to 20.5% due to lower fuel cost and other expenses. Cost of fuel decreased due to softening of international coal prices. Fuel cost eased from 46.6% in Q3FY12 to 36.90% (as a % of Total Income). Other expenditure decreased (as a % of Total Income) from 13.75% in Q3FY12 to 10.22%.

The bottom line was impacted due to impairment cost, higher interest and depreciation. The company has incurred Rs. 6 bn of impairment charges for Mundra project. Interest cost during the quarter jumped 76% y-o-y and 18.8% q-o-q basis to Rs 7.40 bn and depreciation increased by 69% y-o-y and 8% q-o-q to Rs 5.80 bn due to commissioning of unit CGPL at Mundra (Coastal Gujarat Power Ltd) and Maithon.

Valuation

We believe that the Company's massive power capacity addition and diversified business model will drive its growth going ahead. However, in near term higher fuel prices due to regulation on Indexation of Indonesian coal, tariff issue of UMPP and depreciation of Rupees will be key concern for the stock. In our view, valuations are already factoring all negatives and any positive on tariff issue on UMPP would be key catalyst for the stock. At CMP Rs.97 the stock is trading at 1.76x FY13E BV. We maintain our Buy rating on the stock with target price of Rs. 125.

Source : Equity Bulls

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