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Tata Power Ltd ----------------------------------------------------------------------- Maintain NEUTRAL
FY11 results in line; coal cost for Mundra UMPP a key factor to watch
Tata Power’s FY11 consolidated PAT needs to be adjusted for
several one-time items. Its adjusted PAT of Rs15.5 bn declined
14% YoY and was mostly in line with our estimate.
● Coal business’ production of 58 mn t (down 10% YoY) and higher
cost of production of US$38/tn (up 19% YoY) were disappointing;
however, coal realisation at US$76/ton (up 27% YoY) was robust.
● Mundra UMPP is 80% complete and the company maintains its
guidance for commissioning the first unit in September 2011. Tata
Power has made a representation to the Indonesian government
to allow it to procure about 25% of the unhedged imported coal
requirement for this project below the ‘minimum price obligation’
(cheaper by US$30-35/ton). If approved, this would provide
potential upside.
● The Maithon project is 95% complete. Unit 1 and Unit 2 are
expected to be commissioned in June and October 2011,
respectively. Tata Power would sell 309 MW from this project on
merchant basis until the start of its long-term PPA in April 2012.
But, contracted merchant tariff at Rs3.45/kWh is lower than our
estimate. We marginally cut our FY12E EPS by 2% and target
price to Rs1,365. We maintain our NEUTRAL rating.
FY11 consolidated recurring PAT in line with our estimates
Tata Power’s FY11 reported PAT needs to be adjusted for several
one-time items that include: 1) Rs2.48 bn forex gains, 2) Rs1.7 bn
profit on sales of non-core investments by a subsidiary, 3) Rs0.67 bn
forex gain on coal processing charges, 4) Rs0.54 bn gain on sales of
some businesses by Nelco, 5) Rs0.52 bn interest on IT refund, 6)
Rs0.54 bn MAT credit, 7) Rs0.88 bn provision for diminution of longterm
investments by a subsidiary and 8) Rs0.3 bn higher hedging
costs. Adjusting for the above, FY11 recurring PAT of Rs15.5 bn
declined 14% YoY and was mostly in line with our estimate. Coal
business’ production at 58 mn t (down 10% YoY, 10% below CS
estimate) and higher cost of production at US$38/ton (up 19% YoY,
8% higher than CS estimate) were disappointing; however, coal
realisation at US$76/ton (up 27% YoY) was 5% ahead of our estimate.
Mundra project on track, coal pricing could provide upside
The Mundra UMPP is 80% complete. Although the implementation of
power evacuation infrastructure is facing issues currently led by a part
of land facing forest clearance delays, the company believes this
issue will be resolved led by Powergrid’s efforts. Tata Power
maintains its guidance of commissioning the first unit in September
2011. The Mundra project is expected to make losses initially, led by
25% of its imported coal needs (~3 mmtpa) kept unhedged. Tata
Power has made a representation to the Indonesian government to
allow it to procure this coal below the ‘minimum price obligation’ on
the pretext that its agreement with Bumi is not only based on coal
trading but also has investments in coal blocks. If approved, this
would allow Mundra to import this coal US$30-35/ton cheaper vs spot
prices/our estimates, providing potential upside.
Maithon on track but merchant tariff lower than expected
The Maithon project is 95% complete. Unit 1 and Unit 2 of 525 MW
each are expected to be commissioned in June and October 2011,
respectively. Fuel supply agreement (FSA) has been signed with
BCCL/CCL for Unit 1 and with Tata Steel (for 0.5-1 mmtpa); FSA for
Unit 2 would be signed on its commissioning (currently has LoA). Until
the start of its long-term PPA from April 2012, Tata Power has entered
into short-term contracts to sell 154.5 MW each to two distribution
licensees in Delhi (NDPL and BRPL). However, merchant tariff for
these contracts at Rs3.45/kWh is lower than our expectation of
Rs4/kWh. We cut our FY12E EPS marginally by 2% and price target
to Rs1,367 to incorporate this.
Maintain NEUTRAL
Delay in tariff hikes at its Delhi distribution business (NDPL) resulting
in increasing under-recoveries (Rs26 bn as of FY11, ~25% tariff hike
required for its recovery, expected to take 3-4 years) and expiry of the
Mumbai distribution license in August 2014 could be potential
overhangs. We believe incremental upside for the stock will come
from 6.9 GW capacity under implementation that currently lacks
desired visibility.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Tata Power Ltd ----------------------------------------------------------------------- Maintain NEUTRAL
FY11 results in line; coal cost for Mundra UMPP a key factor to watch
Tata Power’s FY11 consolidated PAT needs to be adjusted for
several one-time items. Its adjusted PAT of Rs15.5 bn declined
14% YoY and was mostly in line with our estimate.
● Coal business’ production of 58 mn t (down 10% YoY) and higher
cost of production of US$38/tn (up 19% YoY) were disappointing;
however, coal realisation at US$76/ton (up 27% YoY) was robust.
● Mundra UMPP is 80% complete and the company maintains its
guidance for commissioning the first unit in September 2011. Tata
Power has made a representation to the Indonesian government
to allow it to procure about 25% of the unhedged imported coal
requirement for this project below the ‘minimum price obligation’
(cheaper by US$30-35/ton). If approved, this would provide
potential upside.
● The Maithon project is 95% complete. Unit 1 and Unit 2 are
expected to be commissioned in June and October 2011,
respectively. Tata Power would sell 309 MW from this project on
merchant basis until the start of its long-term PPA in April 2012.
But, contracted merchant tariff at Rs3.45/kWh is lower than our
estimate. We marginally cut our FY12E EPS by 2% and target
price to Rs1,365. We maintain our NEUTRAL rating.
FY11 consolidated recurring PAT in line with our estimates
Tata Power’s FY11 reported PAT needs to be adjusted for several
one-time items that include: 1) Rs2.48 bn forex gains, 2) Rs1.7 bn
profit on sales of non-core investments by a subsidiary, 3) Rs0.67 bn
forex gain on coal processing charges, 4) Rs0.54 bn gain on sales of
some businesses by Nelco, 5) Rs0.52 bn interest on IT refund, 6)
Rs0.54 bn MAT credit, 7) Rs0.88 bn provision for diminution of longterm
investments by a subsidiary and 8) Rs0.3 bn higher hedging
costs. Adjusting for the above, FY11 recurring PAT of Rs15.5 bn
declined 14% YoY and was mostly in line with our estimate. Coal
business’ production at 58 mn t (down 10% YoY, 10% below CS
estimate) and higher cost of production at US$38/ton (up 19% YoY,
8% higher than CS estimate) were disappointing; however, coal
realisation at US$76/ton (up 27% YoY) was 5% ahead of our estimate.
Mundra project on track, coal pricing could provide upside
The Mundra UMPP is 80% complete. Although the implementation of
power evacuation infrastructure is facing issues currently led by a part
of land facing forest clearance delays, the company believes this
issue will be resolved led by Powergrid’s efforts. Tata Power
maintains its guidance of commissioning the first unit in September
2011. The Mundra project is expected to make losses initially, led by
25% of its imported coal needs (~3 mmtpa) kept unhedged. Tata
Power has made a representation to the Indonesian government to
allow it to procure this coal below the ‘minimum price obligation’ on
the pretext that its agreement with Bumi is not only based on coal
trading but also has investments in coal blocks. If approved, this
would allow Mundra to import this coal US$30-35/ton cheaper vs spot
prices/our estimates, providing potential upside.
Maithon on track but merchant tariff lower than expected
The Maithon project is 95% complete. Unit 1 and Unit 2 of 525 MW
each are expected to be commissioned in June and October 2011,
respectively. Fuel supply agreement (FSA) has been signed with
BCCL/CCL for Unit 1 and with Tata Steel (for 0.5-1 mmtpa); FSA for
Unit 2 would be signed on its commissioning (currently has LoA). Until
the start of its long-term PPA from April 2012, Tata Power has entered
into short-term contracts to sell 154.5 MW each to two distribution
licensees in Delhi (NDPL and BRPL). However, merchant tariff for
these contracts at Rs3.45/kWh is lower than our expectation of
Rs4/kWh. We cut our FY12E EPS marginally by 2% and price target
to Rs1,367 to incorporate this.
Maintain NEUTRAL
Delay in tariff hikes at its Delhi distribution business (NDPL) resulting
in increasing under-recoveries (Rs26 bn as of FY11, ~25% tariff hike
required for its recovery, expected to take 3-4 years) and expiry of the
Mumbai distribution license in August 2014 could be potential
overhangs. We believe incremental upside for the stock will come
from 6.9 GW capacity under implementation that currently lacks
desired visibility.
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