Tata Power Company - Pain continues... - Antique

Tata Power reported a consolidated profit of INR1.8bn in 4QFY13 vs street est of INR2.5bn mainly due to lower profitability from the Coal SPV due to lower coal prices. However commissioning of all units at Mundra and Maithon leading to higher fixed cost recovery has provided some respite. Tata Power standalone reported PAT at INR2bn, up 71% YoY due to lower coal costs, higher other income and depreciation write-back.

Coal SPV's earnings affected by lower realization

The cash cost for producing coal from its Kaltim and Arutmin coal assets in Indonesia has increased from USD41.3/ton in 3QFY13 to USD44.3/ton in 4QFY13, up 7% QoQ and has declined 6% YoY. Sales realization declined to USD72.3/ton, down 23% YoY, however was 1% up on QoQ basis. Coal production and sales for the quarter was up 24% YoY and 21% YoY at 19.6mt and 19mt respectively. The cash and debt balance as on March'13 end for the SPV is at USD51m and USD790m respectively.

Mundra UMPP and Maithon update - teething trouble continues for new units

The five commissioned units of CGPL generated 5.5bn kWh at a tariff of INR2.39/kWh of which INR1.84/kWh was the fuel cost (lower on a QoQ basis from INR2/unit in 3QFY13). Coal costs have decreased in the quarter as the SPV has been able to source some coal from North America and Columbia as some coal consumers there had shifted to shale gas. The loss at CGPL in FY13 is at INR16bn vs INR2.2bn in FY12; however adjusting for the impairment provided of INR18bn/8.5bn in FY12/13, loss in CGPL has increased from INR3.8bn in FY12 to INR7.5bn in FY13.

Maithon incurred a loss of INR863m in FY13 vs INR1.7bn in FY12 as both the units were commissioned leading rationalization of fixed costs. After the PPA with Punjab for 300MW has been cancelled, Maithon has started selling its part capacity to West Bengal and as on April'13 it has signed PPAs with WB, Tata Power Delhi and DVC for 300MW each and balance 150MW is being negotiated with some players.

Valuation and outlook

After the recent CERC order on compensatory tariff for CGPL some hopes came alive for a tariff increase. However, we believe that as the Haryana SEB has challenged the order in the Appellate Tribunal, and Gujarat and Maharashtra may follow, the committee formed by the CERC will not be able to decide on any tariff as the matter has become sub-judice. We believe this legal battle may take some time and hence will continue to incur losses in the near term.

We value the stock on SOTP basis: standalone business at 10x FY15e P/E at INR24/share; and Coal and Mundra SPV at INR39/share, and other investments at INR33/share to arrive at a value of INR96/share. At the CMP of INR90, the stock is trading at 13.4x and 1.5x FY15e P/E and P/BV respectively. We maintain HOLD.

Source : Equity Bulls

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