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India Equity Research Reports, IPO and Stock News
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M i x o f v a l u e a n d g r o w t h …
Within the Indian utility space, we believe Tata Power (TPL) offers the
best mix of value and growth. Unlike other private players, TPL offers
value in terms of the existing assured return power assets, presence in
transmission and distribution business and growth profile in terms of
the ongoing capacity addition phase (2.8x increase in generation
capacity by FY13E). Also, its stake in Bumi Resources (30%) enables TPL
to have a net long position on coal, thereby making a derivative play on
coal coupled with adequate fuel security. With a more visible plan of
expansion, we expect the company to deliver a CAGR of 19% and 12%
in revenues and profitability, respectively, over FY11E-FY13E. Hence, we
are initiating coverage on the stock with a BUY rating.
Regulated return power portfolio offers stability, capacity addition at inflection point
Tata Power’s operational capacity portfolio as of now stands at 2976 MW.
Almost ~94% of the existing capacity is based on the assured return
model (~6% is on merchant basis). Further coupled with this is the
presence across the T&D business, whereby the company has 1200 cKm
of transmission lines under its portfolio (51% stake in NDPL). TPL also
supplies electricity in the cities of Mumbai and Delhi (customer base of
0.1 million and 1 million, respectively, as on Q3FY11). Going ahead, we
believe TPL’s generation capacity will grow 2.8x over FY10-FY13E to 8412
MW, as the projects under development get commissioned. The
prominent among these include Maithon (1050 MW to be operational by
Q2FY12) and Mundra UMPP (4000 MW to be operational by FY13E).
Derivative on coal play: Bumi Resources bolsters investment book
In FY07, the company acquired a 30% stake in Bumi Resources for
sourcing the captive requirement for Mundra UMPP. With this acquisition,
currently it is one of the few Indian utilities that has a net long position in
coal. The company has a net long position in coal to the extent of 18
million tonnes (MT) in FY11E and 19.4 MT in FY12E enabling TPL to take
advantage of the current high coal prices. We expect coal realisation in
FY11E and FY12E at ~$70/tonne each.
Valuations
Given the diversified business stream, we have adopted a sum of the part
approach to value the different business segments. Based on the same,
we have arrived at a fair value of | 1383/share and rate the stock as BUY
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
M i x o f v a l u e a n d g r o w t h …
Within the Indian utility space, we believe Tata Power (TPL) offers the
best mix of value and growth. Unlike other private players, TPL offers
value in terms of the existing assured return power assets, presence in
transmission and distribution business and growth profile in terms of
the ongoing capacity addition phase (2.8x increase in generation
capacity by FY13E). Also, its stake in Bumi Resources (30%) enables TPL
to have a net long position on coal, thereby making a derivative play on
coal coupled with adequate fuel security. With a more visible plan of
expansion, we expect the company to deliver a CAGR of 19% and 12%
in revenues and profitability, respectively, over FY11E-FY13E. Hence, we
are initiating coverage on the stock with a BUY rating.
Regulated return power portfolio offers stability, capacity addition at inflection point
Tata Power’s operational capacity portfolio as of now stands at 2976 MW.
Almost ~94% of the existing capacity is based on the assured return
model (~6% is on merchant basis). Further coupled with this is the
presence across the T&D business, whereby the company has 1200 cKm
of transmission lines under its portfolio (51% stake in NDPL). TPL also
supplies electricity in the cities of Mumbai and Delhi (customer base of
0.1 million and 1 million, respectively, as on Q3FY11). Going ahead, we
believe TPL’s generation capacity will grow 2.8x over FY10-FY13E to 8412
MW, as the projects under development get commissioned. The
prominent among these include Maithon (1050 MW to be operational by
Q2FY12) and Mundra UMPP (4000 MW to be operational by FY13E).
Derivative on coal play: Bumi Resources bolsters investment book
In FY07, the company acquired a 30% stake in Bumi Resources for
sourcing the captive requirement for Mundra UMPP. With this acquisition,
currently it is one of the few Indian utilities that has a net long position in
coal. The company has a net long position in coal to the extent of 18
million tonnes (MT) in FY11E and 19.4 MT in FY12E enabling TPL to take
advantage of the current high coal prices. We expect coal realisation in
FY11E and FY12E at ~$70/tonne each.
Valuations
Given the diversified business stream, we have adopted a sum of the part
approach to value the different business segments. Based on the same,
we have arrived at a fair value of | 1383/share and rate the stock as BUY
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