Tata Power (Consolidated) - Rating: HOLD; Target Price: Rs90 - Centrum

Coal sales volume at KPC/Arutmin mines remains a key variable. We have factored-in coal sales volume for Tata Power at 20 MMTPA as it must be seen whether pending resolution of contractual disputes with MDO at Arutmin mines the company can re-coup volumes from other mines in Q3FY14 as in Q2FY14.

During the quarter, we expect Tata Power to report flat sales as PLF for MLA has dipped whereas it has improved for Maithon project. We expect the company to post a net income of Rs 1.3 bn factoring-in under-recovery of costs at Mundra UMPP and modest pick-up in coal realizations. Continued weak rupee could reverse MTM forex losses at consolidated level and aid earnings.

We continue to believe that nominal tariff hike factored-in at Rs0.3/kWh is imminent for Mundra UMPP. Incremental tariff hike may be announced by CERC in Jan/Feb-14 but we expect implementation to be challenging as we expect roadblocks ahead for tariff higher than Rs0.3/kWh that we have factored-in. We expect a resolution in Q4FY14 and hence await tangible developments.

Source : Equity Bulls

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