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Electric Utilities
R infra & Tata Power - 3Q Parent
weak; Consol ok; GIPCL disappoint
Reliance Infra: Buy on value @ 0.68x FY11 Cons. P/BV; PO Rs1240
RELI (Parent) 3Q11 Rec PAT Rs1.7bn -3%YoY. While Cons. Rec PAT at
Rs4.1bn +10%YoY led by power (EBIT +22%YoY) on Delhi distribution EBIT
44%yoy. It has announced Rs10bn (US$222mn) of buyback at Rs725/share at
17% premium to CMP. The company has successfully completed buy-back of
11mn shares in the past. Buy on: Bottoming of Mumbai license area profitability,
pick-up in execution with start of Delhi Metro this month, 8 toll roads & 900MW
Rosa TPP in FY11, placement of Rs160bn order from Krishnapatnam UMPP and
Samalkot gas plant on RELI in 3Q, cash chest (>Rs70bn), Cons. P/BV of 0.68x
FY12E and transformation of RELI into an Infra developer with project wins across
power, roads, metro rail, airports and realty domains.
Cut EPS and PO to Rs1240 on weak 3Q; quality better
RELI (Parent) 3Q11 Rec PAT Rs1.7bn -3%YoY led by robust E&C sales +67%YoY
offset by weak power sales volume -11%YoY, 37%YoY lower treasury income on shift to
longer tenure instruments and 40% higher tax. While Cons. Rec PAT at Rs4.1bn
+10%YoY led by power (EBIT +22%YoY) on strong Delhi distribution. We cut FY11-13E
EPS by 13-32% to factor in weak 3Q led by power and lower treasury income on higher
investment in Infra SPVs. We also cut our PO Rs1240 (Rs1330) to factor-in EPS cut.
Tata Power: Maintain non-consensus Neutral on risks of UMPP losses
A 34%YoY fall in merchant power tariff and -4%YoY growth in generation drove TPC
3Q11 Rec PAT +9%YoY (-23%BofAMLe). However, Indo coal mines save the day with
ASP +26%YoY and drove Cons. Rec PAT +7%YoY. We hike our PO to Rs1430
(Rs1380) on higher coal profitability (hike cons. FY11E 15%) and roll-forward. Reiterate
our non-consensus Neutral on TPC post -23% BofAMLe 3Q result led by limited stock
upside, flat RoE and relatively in-line valuations - FY12E P/BV of 2x vs sector (1.9x).
Weak merchant tariff hit parent; Coal saved consol. Result
TPC 3Q11 Rec PAT +9%YoY (-23%BofAMLe). Indo coal mines did well with ASP
US$73/tn (+26%YoY) despite volume -6%YoY, driving Cons. Rec PAT to Rs4.1bn
+7%YoY. However, Rep Cons PAT was +348% on Rs2.4bn of exceptional 3Q10.
GIPCL: Maintain non-consensus Neutral on delay in catalysts
Delay in stabilization of Surat expansion led to weak GIPCL 3QFY11 Rec PAT at
Rs276mn -6%YoY (-30%BofAMLe). Cut our PO to Rs105 (Rs106) on de-rating of
multiple 1x P/BV (1.2x) despite roll-forward due to delay in capex. Maintain Neutral on
lack of catalysts beyond FY12 and lack of visible capacity expansion leading to lack of
growth in its core power business.
Weak 3Q on lower generation and higher fixed cost
GIPCL has taken full impact of 250MW SLPP II in 3Q with lower Generation growth
12%YoY (vs capacity +145%) on lower PLF and higher fixed costs impacting 3Q PAT -
6%YoY. We cut our FY11E EPS by 31% on delay in commissioning of SLPP II.
However, we broadly maintain our FY12 EPS on likely full benefit of SLPP II.
Investment thesis
Gujarat Inds
We expect the stock to move sideways as we believe the stock lacks catalysts
beyond FY12 and lack of visible capacity expansion leading to lack of growth in
its core power business and declining RoE until FY12E. Our 12-month
perspective is based on a) absence of stock triggers & b) continued gas
availability issues.
Price objective basis & risk
Gujarat Inds (GUJIF)
Our PO of Rs105 for GIPCL is based on 1x to P/BV 1-year forward estimates,
which is in line with its current valuation and discount to the sector on falling RoE
till FY13E . We maintain Neutral on lack of catalysts beyond FY12 and lack of
visible capacity expansion leading to lack of growth in its core power business.
Risks: availability of gas and potential delay in planned expansion at Surat Power
plant.
Reliance Infrastructure (RCTDF)
Our PO of Rs1240 is based on SOTP valuation. The parent business is valued at
Rs324/share based on DCF. We value the stake of 33-45pct in power projects of
Reliance Power at Rs552/share at 10% discount to DCF valuation, while we
value the stake of 49pct in Power distribution business at Rs97/share. Its 74-
100pct stake in Power Transmission business is valued at Rs22/share at 1.2x
book value and stakes of 69pct in the Mumbai Metro project, 95pct in Delhi Metro
Airport Express line and 100pct in road projects are valued based on DCF at
Rs151/share. A stake of 66pct in real estate business is valued at Rs25/share on
DCF basis. Other investments are valued at Rs68/per share on book value.
Based on this, we arrive at an SOTP value of Rs1238/share. Our PO translates
into 1.8x FY12E P/BV (Parent), which is below the utility sector leaders such as
NTPC 2x. Risks to our PO are: ability to source quality power, viable gas supply,
discontinuity/delay of power sector reforms, delay in project execution, nonavailability
of fuel, currency and freight risks, potential matching of demandsupply
of power in India leading fall in power rates.
Tata Pwr. Co. (XTAWF)
Our PO of Rs1430 for Tata Power is based SOTP valuation. IPP business is
valued at Rs494 per share. The parent business is valued at Rs323 per share on
DCF basis at CoE of 13.5pct, 100% stake in Mundra UMPP at Rs123 per share
on DCF at cost of equity of 14.6pct and 74% stake in Maithon JV is valued at
Rs48 per share on DCF basis at CoE of 13.4pct. Its Telecom investments have
been valued at Rs224 per share at current market BofAML PO / deal valuations.
Power related investments valued at Rs648 per share on DCF (Indonesian coal
mines) or P/BV (NDPL, Powerlinkes) or PE (Tata BP Solar) based methods.
Other Investments are valued at Rs61 per share. Risks: project execution
challenges, mismatch in imported coal price hike for Mundra project vs. rise in the
coal index, availability of low price fuel for merchant power projects.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Electric Utilities
R infra & Tata Power - 3Q Parent
weak; Consol ok; GIPCL disappoint
Reliance Infra: Buy on value @ 0.68x FY11 Cons. P/BV; PO Rs1240
RELI (Parent) 3Q11 Rec PAT Rs1.7bn -3%YoY. While Cons. Rec PAT at
Rs4.1bn +10%YoY led by power (EBIT +22%YoY) on Delhi distribution EBIT
44%yoy. It has announced Rs10bn (US$222mn) of buyback at Rs725/share at
17% premium to CMP. The company has successfully completed buy-back of
11mn shares in the past. Buy on: Bottoming of Mumbai license area profitability,
pick-up in execution with start of Delhi Metro this month, 8 toll roads & 900MW
Rosa TPP in FY11, placement of Rs160bn order from Krishnapatnam UMPP and
Samalkot gas plant on RELI in 3Q, cash chest (>Rs70bn), Cons. P/BV of 0.68x
FY12E and transformation of RELI into an Infra developer with project wins across
power, roads, metro rail, airports and realty domains.
Cut EPS and PO to Rs1240 on weak 3Q; quality better
RELI (Parent) 3Q11 Rec PAT Rs1.7bn -3%YoY led by robust E&C sales +67%YoY
offset by weak power sales volume -11%YoY, 37%YoY lower treasury income on shift to
longer tenure instruments and 40% higher tax. While Cons. Rec PAT at Rs4.1bn
+10%YoY led by power (EBIT +22%YoY) on strong Delhi distribution. We cut FY11-13E
EPS by 13-32% to factor in weak 3Q led by power and lower treasury income on higher
investment in Infra SPVs. We also cut our PO Rs1240 (Rs1330) to factor-in EPS cut.
Tata Power: Maintain non-consensus Neutral on risks of UMPP losses
A 34%YoY fall in merchant power tariff and -4%YoY growth in generation drove TPC
3Q11 Rec PAT +9%YoY (-23%BofAMLe). However, Indo coal mines save the day with
ASP +26%YoY and drove Cons. Rec PAT +7%YoY. We hike our PO to Rs1430
(Rs1380) on higher coal profitability (hike cons. FY11E 15%) and roll-forward. Reiterate
our non-consensus Neutral on TPC post -23% BofAMLe 3Q result led by limited stock
upside, flat RoE and relatively in-line valuations - FY12E P/BV of 2x vs sector (1.9x).
Weak merchant tariff hit parent; Coal saved consol. Result
TPC 3Q11 Rec PAT +9%YoY (-23%BofAMLe). Indo coal mines did well with ASP
US$73/tn (+26%YoY) despite volume -6%YoY, driving Cons. Rec PAT to Rs4.1bn
+7%YoY. However, Rep Cons PAT was +348% on Rs2.4bn of exceptional 3Q10.
GIPCL: Maintain non-consensus Neutral on delay in catalysts
Delay in stabilization of Surat expansion led to weak GIPCL 3QFY11 Rec PAT at
Rs276mn -6%YoY (-30%BofAMLe). Cut our PO to Rs105 (Rs106) on de-rating of
multiple 1x P/BV (1.2x) despite roll-forward due to delay in capex. Maintain Neutral on
lack of catalysts beyond FY12 and lack of visible capacity expansion leading to lack of
growth in its core power business.
Weak 3Q on lower generation and higher fixed cost
GIPCL has taken full impact of 250MW SLPP II in 3Q with lower Generation growth
12%YoY (vs capacity +145%) on lower PLF and higher fixed costs impacting 3Q PAT -
6%YoY. We cut our FY11E EPS by 31% on delay in commissioning of SLPP II.
However, we broadly maintain our FY12 EPS on likely full benefit of SLPP II.
Investment thesis
Gujarat Inds
We expect the stock to move sideways as we believe the stock lacks catalysts
beyond FY12 and lack of visible capacity expansion leading to lack of growth in
its core power business and declining RoE until FY12E. Our 12-month
perspective is based on a) absence of stock triggers & b) continued gas
availability issues.
Price objective basis & risk
Gujarat Inds (GUJIF)
Our PO of Rs105 for GIPCL is based on 1x to P/BV 1-year forward estimates,
which is in line with its current valuation and discount to the sector on falling RoE
till FY13E . We maintain Neutral on lack of catalysts beyond FY12 and lack of
visible capacity expansion leading to lack of growth in its core power business.
Risks: availability of gas and potential delay in planned expansion at Surat Power
plant.
Reliance Infrastructure (RCTDF)
Our PO of Rs1240 is based on SOTP valuation. The parent business is valued at
Rs324/share based on DCF. We value the stake of 33-45pct in power projects of
Reliance Power at Rs552/share at 10% discount to DCF valuation, while we
value the stake of 49pct in Power distribution business at Rs97/share. Its 74-
100pct stake in Power Transmission business is valued at Rs22/share at 1.2x
book value and stakes of 69pct in the Mumbai Metro project, 95pct in Delhi Metro
Airport Express line and 100pct in road projects are valued based on DCF at
Rs151/share. A stake of 66pct in real estate business is valued at Rs25/share on
DCF basis. Other investments are valued at Rs68/per share on book value.
Based on this, we arrive at an SOTP value of Rs1238/share. Our PO translates
into 1.8x FY12E P/BV (Parent), which is below the utility sector leaders such as
NTPC 2x. Risks to our PO are: ability to source quality power, viable gas supply,
discontinuity/delay of power sector reforms, delay in project execution, nonavailability
of fuel, currency and freight risks, potential matching of demandsupply
of power in India leading fall in power rates.
Tata Pwr. Co. (XTAWF)
Our PO of Rs1430 for Tata Power is based SOTP valuation. IPP business is
valued at Rs494 per share. The parent business is valued at Rs323 per share on
DCF basis at CoE of 13.5pct, 100% stake in Mundra UMPP at Rs123 per share
on DCF at cost of equity of 14.6pct and 74% stake in Maithon JV is valued at
Rs48 per share on DCF basis at CoE of 13.4pct. Its Telecom investments have
been valued at Rs224 per share at current market BofAML PO / deal valuations.
Power related investments valued at Rs648 per share on DCF (Indonesian coal
mines) or P/BV (NDPL, Powerlinkes) or PE (Tata BP Solar) based methods.
Other Investments are valued at Rs61 per share. Risks: project execution
challenges, mismatch in imported coal price hike for Mundra project vs. rise in the
coal index, availability of low price fuel for merchant power projects.
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