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Consolidated PAT lower than estimates
Tata Power Co. (Tata Power) reported PAT (consolidated) of INR 4.4 bn (down
15% Y-o-Y) due to low operational earnings from standalone power business and
lower incentives in NDPL against last year. Coal SPV profits were at USD 7.9 mn
(up 51% Y-o-Y), driven by better realisation of USD 74/tonne (up 25%).
However, profits were impacted by higher extraction costs of USD 37/tonne
(USD 31/tonne) due to higher overburden removal and pumping costs resulting
from high rainfall and increased demurrage charges.
Maithon unit 1 to be operational in Q1FY12, Mundra unit 1 by Sep 2011
The management guided that with 92% of project work being completed in
Maithon, boiler light up through oil is on in unit 1 and coal firing is expected in
March and subsequently synchronisation in April 2011. In Mundra UMPP, 71% of
the work has been completed and the first unit is expected by September 2011.
Maithon project to sell merchant power in FY12
The Maithon project will be commissioned in Q1FY12; however, the PPA is active
from Q1FY13. Hence, Tata power intends to sell surplus capacity on merchant
basis in FY12, of which, 200 MW has already been tied up on case I biding basis.
Olympus deal cancelled due to delay in approval from lenders
The proposed deal to sell 15% stake in the coal SPVs to Olympus Capital did not
materialise since approvals from all lenders could not be procured within the
stipulated time.
Outlook and valuations: Introducing FY13E; maintain ‘BUY’
Management is aggressively pursuing the second wave of expansion (Dehrand,
Mandkini and Tubed), aggregating 6 GW of projects (not factored in our
valuations). This, along with greater cash flow from coal SPVs (as loan
repayment occurs), would aid valuation. Hence, we maintain ‘BUY’ on the stock
and rate it ‘Sector Outperformer’ on relative return basis. We have revised the
Ke assumption up by 1% across our coverage universe due equivalent rise in
risk free return to 8%, resulting in revised SOTP of INR 1,417/share.
Merchant sales
In Q3FY11, the company sold 353 MUs on merchant basis, higher by 79% Y-o-Y, due to
fully operational merchant plants of 200 MW capacity, yielding INR 3.7 /kWh realisations
(versus INR 5.6/kWh last year).
Coal mining operations
This quarter, the company mined 17 mn tonnes (18 mn in Q3FY10) of coal and realised
~USD 73/tonne (versus USD 59/tonne last year). Cost of mining has increased to USD
37/tonne from USD 31/tonne, largely due to increase in fuel costs and higher opex on
account of heavy rainfall.
Project highlights
4 GW Mundra UMPP – 71% complete – first unit COD by Q2FY12.
Maithon project – 92% complete – COD by Q1FY12, while PPA starts from FY13. In
the interim period Tata power will sell the power on a short-term basis.
HC rules in favour of Tata Power over dispute with R Infra
• Regarding the allocation of 360 MW of power from Trombay, high court has ruled in
favour of Tata Power, with effect from April 01, 2011. Thus, Tata Power intends to
stop supplying 200 MW to Reliance Infrastructure from FY12.
Tale 1: SOTP
Business segment INR per share
Power (existing) 4 65
Pipeline Projects 4 0
BUMI 6 76
Cash & Investments 2 35
Total 1 ,417
Source: Edelweiss research
Company Description
TPWR is a pioneer in India’s power sector, with a presence in all spheres of the power
industry, encompassing generation, transmission, trading, and distribution. It has
demonstrated exceptional performance in its transmission and distribution JVs. The
company was also awarded the first UMPP at Mundra (Gujarat) due to its lowest levelised
tariff bid at INR 2.26 per unit.
Investment Theme
We believe the company is poised to play an important role in the Indian power sector.
All its plants under construction are on schedule, which exhibits the company’s expertise
in project execution. We expect the company to have an installed capacity of ~7,900 MW
by FY13E.
The company has 30% stake in two coal mines of Bumi Resources with proven reserves
of ~2.1 bn tonne. With rising coal prices, we believe, Tata Power will have significant
profits from these assets.
Key Risks
Of the total 5,660 MW under construction, two of its plants have a capacity of 5,050 MW
(Mundra—4,000 MW and Maithon—1,050 MW). Hence, any significant delay in
commissioning projects could impact earnings adversely.
The company is using supercritical technology for its Mundra UMPP. This is a first-of-itstype
in the country. Any problem regarding stabilisation of these units could be a major
risk for the company.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Consolidated PAT lower than estimates
Tata Power Co. (Tata Power) reported PAT (consolidated) of INR 4.4 bn (down
15% Y-o-Y) due to low operational earnings from standalone power business and
lower incentives in NDPL against last year. Coal SPV profits were at USD 7.9 mn
(up 51% Y-o-Y), driven by better realisation of USD 74/tonne (up 25%).
However, profits were impacted by higher extraction costs of USD 37/tonne
(USD 31/tonne) due to higher overburden removal and pumping costs resulting
from high rainfall and increased demurrage charges.
Maithon unit 1 to be operational in Q1FY12, Mundra unit 1 by Sep 2011
The management guided that with 92% of project work being completed in
Maithon, boiler light up through oil is on in unit 1 and coal firing is expected in
March and subsequently synchronisation in April 2011. In Mundra UMPP, 71% of
the work has been completed and the first unit is expected by September 2011.
Maithon project to sell merchant power in FY12
The Maithon project will be commissioned in Q1FY12; however, the PPA is active
from Q1FY13. Hence, Tata power intends to sell surplus capacity on merchant
basis in FY12, of which, 200 MW has already been tied up on case I biding basis.
Olympus deal cancelled due to delay in approval from lenders
The proposed deal to sell 15% stake in the coal SPVs to Olympus Capital did not
materialise since approvals from all lenders could not be procured within the
stipulated time.
Outlook and valuations: Introducing FY13E; maintain ‘BUY’
Management is aggressively pursuing the second wave of expansion (Dehrand,
Mandkini and Tubed), aggregating 6 GW of projects (not factored in our
valuations). This, along with greater cash flow from coal SPVs (as loan
repayment occurs), would aid valuation. Hence, we maintain ‘BUY’ on the stock
and rate it ‘Sector Outperformer’ on relative return basis. We have revised the
Ke assumption up by 1% across our coverage universe due equivalent rise in
risk free return to 8%, resulting in revised SOTP of INR 1,417/share.
Merchant sales
In Q3FY11, the company sold 353 MUs on merchant basis, higher by 79% Y-o-Y, due to
fully operational merchant plants of 200 MW capacity, yielding INR 3.7 /kWh realisations
(versus INR 5.6/kWh last year).
Coal mining operations
This quarter, the company mined 17 mn tonnes (18 mn in Q3FY10) of coal and realised
~USD 73/tonne (versus USD 59/tonne last year). Cost of mining has increased to USD
37/tonne from USD 31/tonne, largely due to increase in fuel costs and higher opex on
account of heavy rainfall.
Project highlights
4 GW Mundra UMPP – 71% complete – first unit COD by Q2FY12.
Maithon project – 92% complete – COD by Q1FY12, while PPA starts from FY13. In
the interim period Tata power will sell the power on a short-term basis.
HC rules in favour of Tata Power over dispute with R Infra
• Regarding the allocation of 360 MW of power from Trombay, high court has ruled in
favour of Tata Power, with effect from April 01, 2011. Thus, Tata Power intends to
stop supplying 200 MW to Reliance Infrastructure from FY12.
Tale 1: SOTP
Business segment INR per share
Power (existing) 4 65
Pipeline Projects 4 0
BUMI 6 76
Cash & Investments 2 35
Total 1 ,417
Source: Edelweiss research
Company Description
TPWR is a pioneer in India’s power sector, with a presence in all spheres of the power
industry, encompassing generation, transmission, trading, and distribution. It has
demonstrated exceptional performance in its transmission and distribution JVs. The
company was also awarded the first UMPP at Mundra (Gujarat) due to its lowest levelised
tariff bid at INR 2.26 per unit.
Investment Theme
We believe the company is poised to play an important role in the Indian power sector.
All its plants under construction are on schedule, which exhibits the company’s expertise
in project execution. We expect the company to have an installed capacity of ~7,900 MW
by FY13E.
The company has 30% stake in two coal mines of Bumi Resources with proven reserves
of ~2.1 bn tonne. With rising coal prices, we believe, Tata Power will have significant
profits from these assets.
Key Risks
Of the total 5,660 MW under construction, two of its plants have a capacity of 5,050 MW
(Mundra—4,000 MW and Maithon—1,050 MW). Hence, any significant delay in
commissioning projects could impact earnings adversely.
The company is using supercritical technology for its Mundra UMPP. This is a first-of-itstype
in the country. Any problem regarding stabilisation of these units could be a major
risk for the company.
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