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Tata Power’s 1Q12 results were disappointing with consolidated
recurring PAT of Rs3.3 bn, down 18% YoY and 37% below our
estimate. However, we note that operating performance (EBIT)
was mostly in line.
● The disappointment was led by the higher-than-expected tax rate of
55.4% (vs CS estimate of 40%). Tax expense was high, mainly led
by better-than-expected profit from coal business that attracted a
higher tax rate of 45% and deferred taxes of Rs550 mn.
● Increase in RoE from 14% to 15.5% (in line with CERC regulation)
for Mumbai’s generation and transmission business and a 30% YoY
increase in coal realisation at US$94.1/tn were key positives. But, a
19% YoY increase in coal production cost to US$40.6/tn, almost flat
coal production/sales, and a 23% YoY decline in average merchant
tariffs at Rs4/kwh were marginally disappointing.
● Its key generation projects, Maithon and Mundra, are progressing
well but are delayed by 2-3 months. Tata Power plans to add 0.45
GW gas based and 1.32 GW Maithon expansion projects in its
portfolio. We cut our EPS estimates for FY12-13 by 11-12% and
target price by 11% to Rs1,217; maintain our NEUTRAL rating.
Weak 1Q12 results mainly impacted by high tax rate
Tata Power’s 1Q12 consolidated recurring PAT of Rs3.3 bn declined
18% YoY and was 37% below our estimate. While the operating result
(EBIT) was mostly in line with our estimate, the key reason for the
disappointment was a higher-than-expected tax rate of 55.4% (vs our
estimate of 40%). Tax expense was higher mainly on account of: (1)
better-than-expected profit from the coal business (attracted a higher
corporate tax rate of 45%) and (2) deferred taxes of Rs550 mn, mainly
created on account of wind assets and capitalisation of T&D assets.
The reported PAT of Rs4.3 bn was up 35% YoY and after including
the post-tax impact of one-time items: (1) Rs0.99 bn received on
account of favourable ATE’s (Appellate Tribunal of Electricity) order at
NDPL and (2) Rs1 bn writeoff of deferred exploration costs at its
Arutmin coal mine and (3) forex gain of Rs898 mn.
As per Maharashtra state’s new multi-year-tariff (MYT) regulation,
Tata Power’s equity invested for the Mumbai license area’s power
generation and transmission business would now earn RoE of 15.5%
as per the CERC regulation versus 14% earlier, resulting in a marginal
increase in its power business performance versus our estimates.
Coal business performance robust on high coal realisation
While the coal business has not been able to ramp-up coal
production/sales (production almost flat YoY at 15.5 mt), coal realisation at
US$94.1/ton increased 30% YoY. This led to a 77% YoY increase in coal
business’ operating profit despite a 19% YoY increase in coal production
cost at US$40.6/ton, mainly led by rising cost of diesel.
Key projects slightly delayed but are progressing well
As per the company, the first unit of 525 MW at its Maithon project is
expected to be commissioned during August 2011 and the second
unit is expected to be commissioned during December 2011 (2-3
months behind our estimate). Similarly, the first unit of Mundra UMPP
project is now expected to be commissioned during Jan-Feb 2012
(two months behind the initial estimate, impacted on account of delay
in implementation of power evacuation infrastructure by
Powergrid/project beneficiaries).
Cut EPS estimates and target price by 11-12%; maintain
NEUTRAL
We cut our earnings estimates for FY12-13 by 11-12% and target
price by 11% to Rs1,217, as we incorporate: (1) delay in the
commissioning of Maithon and Mundra projects, (2) higher-thanexpected
losses at the Mundra project post Indonesian regulations
and (3) marginal increase in cost of production at its coal business.
We maintain our NEUTRAL rating.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Tata Power’s 1Q12 results were disappointing with consolidated
recurring PAT of Rs3.3 bn, down 18% YoY and 37% below our
estimate. However, we note that operating performance (EBIT)
was mostly in line.
● The disappointment was led by the higher-than-expected tax rate of
55.4% (vs CS estimate of 40%). Tax expense was high, mainly led
by better-than-expected profit from coal business that attracted a
higher tax rate of 45% and deferred taxes of Rs550 mn.
● Increase in RoE from 14% to 15.5% (in line with CERC regulation)
for Mumbai’s generation and transmission business and a 30% YoY
increase in coal realisation at US$94.1/tn were key positives. But, a
19% YoY increase in coal production cost to US$40.6/tn, almost flat
coal production/sales, and a 23% YoY decline in average merchant
tariffs at Rs4/kwh were marginally disappointing.
● Its key generation projects, Maithon and Mundra, are progressing
well but are delayed by 2-3 months. Tata Power plans to add 0.45
GW gas based and 1.32 GW Maithon expansion projects in its
portfolio. We cut our EPS estimates for FY12-13 by 11-12% and
target price by 11% to Rs1,217; maintain our NEUTRAL rating.
Weak 1Q12 results mainly impacted by high tax rate
Tata Power’s 1Q12 consolidated recurring PAT of Rs3.3 bn declined
18% YoY and was 37% below our estimate. While the operating result
(EBIT) was mostly in line with our estimate, the key reason for the
disappointment was a higher-than-expected tax rate of 55.4% (vs our
estimate of 40%). Tax expense was higher mainly on account of: (1)
better-than-expected profit from the coal business (attracted a higher
corporate tax rate of 45%) and (2) deferred taxes of Rs550 mn, mainly
created on account of wind assets and capitalisation of T&D assets.
The reported PAT of Rs4.3 bn was up 35% YoY and after including
the post-tax impact of one-time items: (1) Rs0.99 bn received on
account of favourable ATE’s (Appellate Tribunal of Electricity) order at
NDPL and (2) Rs1 bn writeoff of deferred exploration costs at its
Arutmin coal mine and (3) forex gain of Rs898 mn.
As per Maharashtra state’s new multi-year-tariff (MYT) regulation,
Tata Power’s equity invested for the Mumbai license area’s power
generation and transmission business would now earn RoE of 15.5%
as per the CERC regulation versus 14% earlier, resulting in a marginal
increase in its power business performance versus our estimates.
Coal business performance robust on high coal realisation
While the coal business has not been able to ramp-up coal
production/sales (production almost flat YoY at 15.5 mt), coal realisation at
US$94.1/ton increased 30% YoY. This led to a 77% YoY increase in coal
business’ operating profit despite a 19% YoY increase in coal production
cost at US$40.6/ton, mainly led by rising cost of diesel.
Key projects slightly delayed but are progressing well
As per the company, the first unit of 525 MW at its Maithon project is
expected to be commissioned during August 2011 and the second
unit is expected to be commissioned during December 2011 (2-3
months behind our estimate). Similarly, the first unit of Mundra UMPP
project is now expected to be commissioned during Jan-Feb 2012
(two months behind the initial estimate, impacted on account of delay
in implementation of power evacuation infrastructure by
Powergrid/project beneficiaries).
Cut EPS estimates and target price by 11-12%; maintain
NEUTRAL
We cut our earnings estimates for FY12-13 by 11-12% and target
price by 11% to Rs1,217, as we incorporate: (1) delay in the
commissioning of Maithon and Mundra projects, (2) higher-thanexpected
losses at the Mundra project post Indonesian regulations
and (3) marginal increase in cost of production at its coal business.
We maintain our NEUTRAL rating.
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