Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� �
Tata Power (TTPW.BO, Buy, 12-m TP: Rs1,477)
Source of opportunity
We upgrade Tata Power (TPWR) to Buy from Neutral and raise our
12-m SOTP-based target price to Rs1,477 (from Rs1,450), implying
potential upside of about 17%.
We see TPWR’s current valuation as a good entry point as the stock
has corrected 5% over the last three months and is currently trading
at 1.9X FY12E P/B vs. the 3-year average of 2.1X with FY12E ROE of
19% vs. 15% over the last three years.
TPWR is best positioned among peers in the high input cost
environment due to: (1) its backward integration through a 30%
ownership in Bumi, reducing its exposure to fuel shortage risk; and
(2) most of the projects are under operation on a fuel pass-through
mechanism, mitigating fuel price risk.
We believe Tata Power is on track for commissioning of the
4,000MW Mundra plant in Sep 2011 and Unit 1 of Maithon would be
synchronized in 4QFY11. The likely sale of 300MW from Unit 1 of
Maithon in the short-term market until the end of FY12E should help
improve the cash flows of Tata Power.
With the commissioning of Mundra (which consumes about 12-14
mt of coal), we believe the earnings profile, which is currently
dominated by Bumi’s contribution, will become less cyclical. Tata
Power’s net long coal position changes to 6-10 mtpa from the 18-25
mtpa on full commissioning of Mundra Power plant.
While the existing business (which is largely regulated) offers
downside protection to Tata Power, we believe newsflow on
progress of projects under development will be the key catalyst for
the stock. The company is in advanced stages of completing the preconstruction activities for these projects and is likely to start
construction activity shortly. As the uncertainty relating to fuel for
these projects is comparatively lower compared with its peers, we
believe the stock will start fully reflecting the value of these projects
once there is more visibility on their commissioning timelines.
Valuation
Our new 12-m SOTP-based target price of Rs1,477 implies potential
upside of about 17% from current levels. The stock is trading at a
discount to its historical 3-year average P/B and on CROCI methodology
relative to its peers.
Key risks
Decline in international coal prices, further delay in land acquisition of
projects under development.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� �
Tata Power (TTPW.BO, Buy, 12-m TP: Rs1,477)
Source of opportunity
We upgrade Tata Power (TPWR) to Buy from Neutral and raise our
12-m SOTP-based target price to Rs1,477 (from Rs1,450), implying
potential upside of about 17%.
We see TPWR’s current valuation as a good entry point as the stock
has corrected 5% over the last three months and is currently trading
at 1.9X FY12E P/B vs. the 3-year average of 2.1X with FY12E ROE of
19% vs. 15% over the last three years.
TPWR is best positioned among peers in the high input cost
environment due to: (1) its backward integration through a 30%
ownership in Bumi, reducing its exposure to fuel shortage risk; and
(2) most of the projects are under operation on a fuel pass-through
mechanism, mitigating fuel price risk.
We believe Tata Power is on track for commissioning of the
4,000MW Mundra plant in Sep 2011 and Unit 1 of Maithon would be
synchronized in 4QFY11. The likely sale of 300MW from Unit 1 of
Maithon in the short-term market until the end of FY12E should help
improve the cash flows of Tata Power.
With the commissioning of Mundra (which consumes about 12-14
mt of coal), we believe the earnings profile, which is currently
dominated by Bumi’s contribution, will become less cyclical. Tata
Power’s net long coal position changes to 6-10 mtpa from the 18-25
mtpa on full commissioning of Mundra Power plant.
While the existing business (which is largely regulated) offers
downside protection to Tata Power, we believe newsflow on
progress of projects under development will be the key catalyst for
the stock. The company is in advanced stages of completing the preconstruction activities for these projects and is likely to start
construction activity shortly. As the uncertainty relating to fuel for
these projects is comparatively lower compared with its peers, we
believe the stock will start fully reflecting the value of these projects
once there is more visibility on their commissioning timelines.
Valuation
Our new 12-m SOTP-based target price of Rs1,477 implies potential
upside of about 17% from current levels. The stock is trading at a
discount to its historical 3-year average P/B and on CROCI methodology
relative to its peers.
Key risks
Decline in international coal prices, further delay in land acquisition of
projects under development.
No comments:
Post a Comment