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Tata Power Company (TTPW.BO)
Buy Equity Research
Demonstration of low grade coal & PLFs key for Mundra re-rating
What's changed
The key takeaways of the Tata Power analyst meet are:
1) Unit 1 of Mundra Project to be commissioned in 4QFY12 vs 3QFY12 earlier
primarily due to delay in completion of transmission lines by Power Grid. The
timeline as per PPA to sell the output from Unit 1 is Sep 2012.
2) About 1 mn tons of coal is already imported (at about US$40) prior to the
proposed changes to Indonesian regulations requiring all contracts to be
benchmarked to market prices. Our calculations indicate that this coal is
sufficient to run Unit 1 (800MW) for about 6 months.
3) Management expressed confidence in reducing fuel costs using low grade
coal without significant impact on efficiency. They confirmed that there are no
constraints in physical infrastructure which is required to handle high ash
content of low grade coal. We estimate valuation of Mundra to range between
Rs208/share to negative Rs163/share (at 75% PLF) at delivered costs ranging
between US$60-90/ton (with CV of 4500Kcal).
4) The PLF for Mundra will largely be a function of underlying demand and
ranking in merit order dispatch mechanism. While we assumed 75% in our
base case assumption, TPWR benefits from lower PLF.
Implications
We believe the current market price already reflects most downside risks for
Mundra. With earnings and valuation having low sensitivity to utilization rates,
fuel costs and short term rates, we expect TPWR to outperform its peers in the
IPP segment in the current uncertain operating environment
Valuation
We reiterate our Buy on TPWR, but lower our 12-m SOTP based TP to
Rs1410 (earlier Rs1436) as we fine-tune our earnings estimates by -3% to
+1% over FY12E-FY14E. Our target implies potential upside of about 41%.
Key risks
1) Higher than estimated increase in coal prices which magnifies the losses
at Mundra; 2) Negative news flows on production growth at Bumi.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy List
Coverage View: Cautious
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Tata Power Company (TTPW.BO)
Buy Equity Research
Demonstration of low grade coal & PLFs key for Mundra re-rating
What's changed
The key takeaways of the Tata Power analyst meet are:
1) Unit 1 of Mundra Project to be commissioned in 4QFY12 vs 3QFY12 earlier
primarily due to delay in completion of transmission lines by Power Grid. The
timeline as per PPA to sell the output from Unit 1 is Sep 2012.
2) About 1 mn tons of coal is already imported (at about US$40) prior to the
proposed changes to Indonesian regulations requiring all contracts to be
benchmarked to market prices. Our calculations indicate that this coal is
sufficient to run Unit 1 (800MW) for about 6 months.
3) Management expressed confidence in reducing fuel costs using low grade
coal without significant impact on efficiency. They confirmed that there are no
constraints in physical infrastructure which is required to handle high ash
content of low grade coal. We estimate valuation of Mundra to range between
Rs208/share to negative Rs163/share (at 75% PLF) at delivered costs ranging
between US$60-90/ton (with CV of 4500Kcal).
4) The PLF for Mundra will largely be a function of underlying demand and
ranking in merit order dispatch mechanism. While we assumed 75% in our
base case assumption, TPWR benefits from lower PLF.
Implications
We believe the current market price already reflects most downside risks for
Mundra. With earnings and valuation having low sensitivity to utilization rates,
fuel costs and short term rates, we expect TPWR to outperform its peers in the
IPP segment in the current uncertain operating environment
Valuation
We reiterate our Buy on TPWR, but lower our 12-m SOTP based TP to
Rs1410 (earlier Rs1436) as we fine-tune our earnings estimates by -3% to
+1% over FY12E-FY14E. Our target implies potential upside of about 41%.
Key risks
1) Higher than estimated increase in coal prices which magnifies the losses
at Mundra; 2) Negative news flows on production growth at Bumi.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy List
Coverage View: Cautious
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