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F o c u s o n M u n d h r a …
The stock of Tata Power has corrected by 13% post Q1FY12 results vis-à-
vis a 5% decline in BSE Power Index and 2.2% decline in the Sensex due
to Street concerns on “viability of Mundhra project”. The company hosted
an analyst meet yesterday to allay these concerns. In a nutshell, Mundhra
UMPP (4000 MW) will be a loss making venture while the management is
trying to cut losses on this project by 1) Operating at lower PLF at ~ 70-
78% 2.) Procuring lower grade coal from abroad (rather than using
Indonesian coal) 3) Renegotiating the tariffs with beneficiaries – Gujarat,
Haryana, Maharashtra Discom (although media reports indicate Gujarat
DISCOM – the largest beneficiary has rejected the tariff revision). We have
downgraded earnings by 3% for FY12 and by 23% for FY13 (mainly due
to losses in Mundhra) and downgraded the stock from BUY to HOLD on
the back of negative returns from Mundhra. Key risks to our call are tariff
revision in Mundhra and faster than guided ramp up in Bumi Resources.
ƒ Analyst meet takeaways
• The company had capacity of ~1 million tonnes (MT) at Mundhra
from Bumi before the change of law came into effect
• Tata Power would be procuring lower grade coal for the Mundhra
project and operate at lower PLFs (our assumption: 72%), thereby
foregoing incentives (linked to higher PLFs)
• The fixed cost for the project is | 0.91/kwhr
• The company has asked for tariff revision for beneficiaries. Media
reports indicate that the largest beneficiary Gujarat (1805 MW) has
rejected the tariff revision
• Tata Power expects Bumi Resources to produce 75 MT by CY13
• The company aims to have capacity of 25000 MW by FY17
• Tata Power is yet to finalise any plans for ~ 8000 MW (of the 25000
MW), which can come from outside India. However, to materialise
this, we believe capacity growth would be dilutive in nature
• The company has made a representation to the Indonesian
government
Valuation
At the CMP of | 997, the stock is trading at P/E of 10.2x and 11.8x on
FY12E and FY13E EPS, respectively. Similarly, on P/BV multiples, the
stock is trading at 1.6x and 1.4x FY13E, respectively. We have revised our
target price to | 1038 to factor in losses in the Mundhra UMPP.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
F o c u s o n M u n d h r a …
The stock of Tata Power has corrected by 13% post Q1FY12 results vis-à-
vis a 5% decline in BSE Power Index and 2.2% decline in the Sensex due
to Street concerns on “viability of Mundhra project”. The company hosted
an analyst meet yesterday to allay these concerns. In a nutshell, Mundhra
UMPP (4000 MW) will be a loss making venture while the management is
trying to cut losses on this project by 1) Operating at lower PLF at ~ 70-
78% 2.) Procuring lower grade coal from abroad (rather than using
Indonesian coal) 3) Renegotiating the tariffs with beneficiaries – Gujarat,
Haryana, Maharashtra Discom (although media reports indicate Gujarat
DISCOM – the largest beneficiary has rejected the tariff revision). We have
downgraded earnings by 3% for FY12 and by 23% for FY13 (mainly due
to losses in Mundhra) and downgraded the stock from BUY to HOLD on
the back of negative returns from Mundhra. Key risks to our call are tariff
revision in Mundhra and faster than guided ramp up in Bumi Resources.
ƒ Analyst meet takeaways
• The company had capacity of ~1 million tonnes (MT) at Mundhra
from Bumi before the change of law came into effect
• Tata Power would be procuring lower grade coal for the Mundhra
project and operate at lower PLFs (our assumption: 72%), thereby
foregoing incentives (linked to higher PLFs)
• The fixed cost for the project is | 0.91/kwhr
• The company has asked for tariff revision for beneficiaries. Media
reports indicate that the largest beneficiary Gujarat (1805 MW) has
rejected the tariff revision
• Tata Power expects Bumi Resources to produce 75 MT by CY13
• The company aims to have capacity of 25000 MW by FY17
• Tata Power is yet to finalise any plans for ~ 8000 MW (of the 25000
MW), which can come from outside India. However, to materialise
this, we believe capacity growth would be dilutive in nature
• The company has made a representation to the Indonesian
government
Valuation
At the CMP of | 997, the stock is trading at P/E of 10.2x and 11.8x on
FY12E and FY13E EPS, respectively. Similarly, on P/BV multiples, the
stock is trading at 1.6x and 1.4x FY13E, respectively. We have revised our
target price to | 1038 to factor in losses in the Mundhra UMPP.
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