Tata Power : Power Generation to treble to 8,200 MW by FY13E:: Karvy

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Power Generation to treble to 8,200 MW by
FY13E
Tata Power Company (TPC) – India's largest private sector power
producer with ~3,000MW of power generation assets – has a notable
project portfolio with over 5,000MW of projects under construction
resulting in robust 65% CAGR in topline over FY11-13E.
Mumbai License Area: TPC to Benefit from Open Access Approvals
TPC’s current capacity stands at 2,127MW in Mumbai Licence Area – with
under regulated return of 14.5% (71% of current capacity), and 548MW
captive power plant with a long-term PPA at RoE 20% – provides visibility
steady cash flow.
Derivative Play on Coal: Ensures Hedge for Mundra UMPP
TPC has 30% stake each in Bumi Resources' (Bumi) two unlisted coal mines
i.e. KPC & Arutmin. Further, as per the independent coal supply pact with
Bumi, TPC would get coal from these mines for firing its 4,000 Mundra
UMPP. When total production at the mines reaches the targeted 100
MTPA, TPC will have net long position of 23 MTPA in Indonesian coal,
which would coincide with the Mundra UMPP becoming fully operational.
The Mundra UMPP will require 12.3 MTPA of coal, out of which 45% (5.6
MTPA) can be passed on, while the rest 55% (6.7 MTPA) would be subject
to price volatility.
Debt Service Obligations: to Help Managing Rs. 250 bn Capex Plan
TPC has ~6,125MW of projects in the pipeline – entailing total capex of Rs.
250 bn – with equity contribution of ~ Rs. 50 bn. Moreover, TPC would also
generate adequate internal accruals owing to total ~8,000MW operational
capacity, which is likely to get operational by FY13E. TPC owns substantial
investment to the tune of ~Rs. 68 bn, which it can monetize to fund its
growth plans.
Outlook & Valuation
At the CMP, the stock trades at 1.9x and 1.6x FY12E and FY13E P/BV
respectively, and 7.5x FY13E EV/EBITDA. We have arrived at SOTP-based
target price of Rs. 1,503 for the stock, by independently valuing TPC’s
power business, investments, stake in Bumi and the other JVs. The power
generation business has been valued at Rs. 738, while TPC’s stake in Bumi
has been valued at Rs. 370 per share.
We initiate coverage on the stock with a “Buy” recommendation.