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Tata Power
▲ Overweight; Previous: Neutral; TTPW.BO, TPWR IN
Defensive streak + potential coal beta = Value in volatile markets: Upgrade to OW
• Right ingredients to play the market down-cycle and rising coal
prices, upgrade to OW: Over the past three months, Tata Power
(TPWR) has outperformed the Sensex by 4.5%. We expect TPWR to
deliver value in volatile markets and, along with Adani Power,
outperform private IPPs. Owing to Bumi coal mine exposure, it’s the
only IPP net-long on imported coal prices. Since we downgraded TPWR
in Apr-10, the international coal price index is up ~28%. Although coal
price movements have not translated into immediate stock upside, as
expected, the coming quarters might benefit from a reset of LT contracts
to higher prices. There is a defensive streak in near-term earnings, as
~55% of our EBITDA estimate is from regulated return projects.
• Execution of power portfolio on track: For the past few quarters
management has maintained that Mundra UMPP is set to meet CoD
target of Sep-11 for the first 800MW unit, three months ahead of our
earlier estimate. Maithon is 90%+ complete, though delayed by about
three months. Accounting for the progress on power projects, our FY12
estimate is up ~6%.
• We raise our SOP-based PT to Rs1,490 from Rs1,425, mainly as a
result of rolling forward our timeframe from Mar-11 to Mar-12. Our
new PT implies an FY12E P/BV of 2.3x, slightly below NTPC (2.4x),
although the recent execution track record has been superior. Our SOP
consists of a 41% value for coal mines, 39% for generation, 6.2% for
regulated distribution & Powerlinks, and the remaining ~14% attributed
to investments. TPWR’s solid operating track record, good levels of
transparency, and what we believe to be the best corporate governance in
our IPP space should keep peripheral concerns at bay. The underdevelopment
Orissa power project accounts for 7.8% of our PT; delays in
securing clearance for the development of captive coal blocks is a key
downside risk to our PT.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Tata Power
▲ Overweight; Previous: Neutral; TTPW.BO, TPWR IN
Defensive streak + potential coal beta = Value in volatile markets: Upgrade to OW
• Right ingredients to play the market down-cycle and rising coal
prices, upgrade to OW: Over the past three months, Tata Power
(TPWR) has outperformed the Sensex by 4.5%. We expect TPWR to
deliver value in volatile markets and, along with Adani Power,
outperform private IPPs. Owing to Bumi coal mine exposure, it’s the
only IPP net-long on imported coal prices. Since we downgraded TPWR
in Apr-10, the international coal price index is up ~28%. Although coal
price movements have not translated into immediate stock upside, as
expected, the coming quarters might benefit from a reset of LT contracts
to higher prices. There is a defensive streak in near-term earnings, as
~55% of our EBITDA estimate is from regulated return projects.
• Execution of power portfolio on track: For the past few quarters
management has maintained that Mundra UMPP is set to meet CoD
target of Sep-11 for the first 800MW unit, three months ahead of our
earlier estimate. Maithon is 90%+ complete, though delayed by about
three months. Accounting for the progress on power projects, our FY12
estimate is up ~6%.
result of rolling forward our timeframe from Mar-11 to Mar-12. Our
new PT implies an FY12E P/BV of 2.3x, slightly below NTPC (2.4x),
although the recent execution track record has been superior. Our SOP
consists of a 41% value for coal mines, 39% for generation, 6.2% for
regulated distribution & Powerlinks, and the remaining ~14% attributed
to investments. TPWR’s solid operating track record, good levels of
transparency, and what we believe to be the best corporate governance in
our IPP space should keep peripheral concerns at bay. The underdevelopment
Orissa power project accounts for 7.8% of our PT; delays in
securing clearance for the development of captive coal blocks is a key
downside risk to our PT.
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