Tata Power Company Limited - Double whammy continues - 1QFY14 Results Review - Antique

Tata Power reported consolidated loss of INR1.2bn in 1QFY14 vs our estimate of INR3bn profit mainly due to lower profitability from the Coal SPV which was impacted by lower coal prices. However commissioning of all units at Mundra and Maithon leading to higher fixed cost recovery has provided some respite. We believe Tata Power would have ideally gained due to INR depreciation as it a net exporter of coal, however, due to the unprecedented fall in the coal prices in the last 4 months the forex gains have been wiped out. As the global coal prices remain weak and are showing no signs of recovery, we believe Tata Power's profitability will remain under pressure. We had assumed loss of INR6bn for FY14 in CGPL; however, it has incurred a loss of INR3.8bn in 1QFY14 itself and has guided for similar losses in coming quarters in FY14. Hence, we have increased our estimates of CGPL losses to INR9.8bn in FY14. Some respite is expected if compensatory tariff is allowed by CERC as every 10 paise increase in tariff will provide incremental profit of INR2.2bn.

Valuation

We have downgraded FY14/15 EPS by 54% / 61% to INR 2.2/2.6 due to change in coal price assumption for Coal SPV. We value the stock on SOTP basis: standalone business at 12x FY15e P/E at INR29/share; and Coal and Mundra SPV at INR17/share, and other investments at INR33/share to arrive at a value of INR79/share. At the CMP of INR74, the stock is trading at 28.4x and 1.4x FY15e P/E and P/BV respectively. We maintain HOLD.

Source : Equity Bulls

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