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The Mundra UMPP, which we believe is being well-executed by TPWR,
might end up as a big drag on the bottom-line if coal prices are market linked.
Post a cross-subsidy surcharge, the Mumbai Electricity distribution business
too seems to be losing vitality. However, these negatives seem to be in the
price, and value is emerging. We maintain OW, albeit with lower PT of
Rs1,200.
The economics of the Mundra UMPP could be severely affected by an
Indonesian government ruling that coal exports should be at market
prices. Given that the project enjoys only partial pass-through, the P/L
could bleed Rs5B per year, unless the PPA is re-negotiated under Force
Majeure clause. The company has invested ~Rs112B in this UMPP, making
a roll-back difficult. We cut Mundra estimates, and its value is now (-ve)
Rs117/share in our SOP.
Coal mine stakes come to the rescue: We believe the P/L impact of the
Mundra cuts is not great. As Mundra will import at/near market prices, we
bump up our coal profit estimates. As a result, earnings cuts are 5% and
13% for FY13/14. For FY12, we upgrade earnings by 24%, as June-q coal
profits were higher than estimated. With this, TPWR sees the smallest
earnings cut in our universe – the defensive nature of business, as well as
coal mine hedge is impactful.
In the Mumbai license area, the electricity distribution business has not
received happy news. The regulator has, in principle, approved a crosssubsidy surcharge on customers who have migrated from Reliance Infra to
TPWR. The CSS is not yet known, but it could reduce the rationale for a
switch to TWPR. We reduce the value of Mumbai distribution by 33% to
Rs33/share.
Like peers, the IPP business is vulnerable to coal supply deficits and
implementation delays. We cut Maithon PLF, and remove the value
accorded to Orissa captive coal mine based projects due to continued
uncertainty. Our IPP value declines by ~Rs116/share.
Our new SOP-based PT is Rs1,200. Following the above cuts, Indonesian
coal mines, at Rs760/share, remain the biggest constituents. Re-negotiation
of Mundra PPA in favour of TPWR could be a tangible upside risk, while a
sharp decline in coal prices could pose downside.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
The Mundra UMPP, which we believe is being well-executed by TPWR,
might end up as a big drag on the bottom-line if coal prices are market linked.
Post a cross-subsidy surcharge, the Mumbai Electricity distribution business
too seems to be losing vitality. However, these negatives seem to be in the
price, and value is emerging. We maintain OW, albeit with lower PT of
Rs1,200.
The economics of the Mundra UMPP could be severely affected by an
Indonesian government ruling that coal exports should be at market
prices. Given that the project enjoys only partial pass-through, the P/L
could bleed Rs5B per year, unless the PPA is re-negotiated under Force
Majeure clause. The company has invested ~Rs112B in this UMPP, making
a roll-back difficult. We cut Mundra estimates, and its value is now (-ve)
Rs117/share in our SOP.
Coal mine stakes come to the rescue: We believe the P/L impact of the
Mundra cuts is not great. As Mundra will import at/near market prices, we
bump up our coal profit estimates. As a result, earnings cuts are 5% and
13% for FY13/14. For FY12, we upgrade earnings by 24%, as June-q coal
profits were higher than estimated. With this, TPWR sees the smallest
earnings cut in our universe – the defensive nature of business, as well as
coal mine hedge is impactful.
In the Mumbai license area, the electricity distribution business has not
received happy news. The regulator has, in principle, approved a crosssubsidy surcharge on customers who have migrated from Reliance Infra to
TPWR. The CSS is not yet known, but it could reduce the rationale for a
switch to TWPR. We reduce the value of Mumbai distribution by 33% to
Rs33/share.
Like peers, the IPP business is vulnerable to coal supply deficits and
implementation delays. We cut Maithon PLF, and remove the value
accorded to Orissa captive coal mine based projects due to continued
uncertainty. Our IPP value declines by ~Rs116/share.
Our new SOP-based PT is Rs1,200. Following the above cuts, Indonesian
coal mines, at Rs760/share, remain the biggest constituents. Re-negotiation
of Mundra PPA in favour of TPWR could be a tangible upside risk, while a
sharp decline in coal prices could pose downside.
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