Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Tata Power
K ey take aways from analyst meet
Tata Power organised an analyst meet this evening
This evening Tata Power organised an analyst meet and the key highlights are as
follows; 1) from current operating capacity of 3,176MW, Tata Power has a target
of 25,000MW generation capacity by 2017, 2) the development at captive coal
blocks of Mandakini and Tubed is on track, 3) the company's strategy on merchant
capacity is cautious and merchant power is unlikely to be >10% in generation mix.
Key points on Mundra Ultra Mega Power Project (UMPP)
Tata Power is developing a 4,000MW imported coal based project and the key
points on this UMPP are, 1) Unit I (800MW) is likely to be commissioned in
March 12 or 1Q FY13, 2) Indonesian government is unlikely to provide any relief
in terms of relaxation from new regulation, 3) Tata Power would explore options to
use lower grade coal if it leads to economic benefit, 4) Beneficiary states would
like to involve central government in any discussion related with tariff revisions.
Mundra remains an overhang for the stock
The Indonesian government has decided to link the price of exported coal with a
benchmark based on international prices. Indonesia is the source of coal for
Mundra project and if spot price is above US$65-70/tonne, the project may not be
profitable in our view. Currently, we don’t include Mundra project in our valuation
and believe that this issue will continue to remain an overhang for the stock.
Valuation: Maintain Buy and price target of Rs1,350
We use a sum-of-the-parts methodology. The power segment comprises 64% of
our valuation), 2) the stake in Bumi’s mines (25%); and 3) investments (11%).
Mundra UMPP remains an overhang
According to news reports, the future of power projects in India based on coal
imported from Indonesia is uncertain. There are press reports that the Indonesian
government has decided to link the price of coal exported from the country with
a benchmark based on international coal prices. Since Indonesia is a key source
of thermal coal in India and there are projects based on Indonesian coal imports
(such as Tata Power’s Mundra ultra mega power project (UMPP)), this could be
a major issue for the sector.
We believe that the Mundra UMPP will remain an overhang for Tata Power in
terms of profitability. The key issue is if the coal spot price is too high (above
US$65-70/tonne), the project may not be profitable.
Table 1: Sample calculation of coal prices (current and post regulation scenarios)
(US$) Current Post change
Coal mining cost (basically cash cost) 35.0 35.0
Royalty (assuming 13.5%) 10.3 14.9
Average Selling price FOB (assumed) 76.0 110.0
Freight and other costs (from Indonesia to India) 10.0 10.0
Average Selling price in India (assumed) 76.0 76.0
Profit (excluding Depreciation etc) 20.7 16.2
Note: For Tata Power, the numbers are approximations based on CY10 figures. Source: UBS estimates
Tata Power has approached the Ministry of Power to request that it consider the
possible changes in Indonesia and allow a tariff hike. However, we think there
are practical difficulties in this: a) the buyers are state governments and the role
of central government is limited in this regard; and b) there are a large number
of buyers for UMPP power output and it may be difficult to convince all the
SEBs about the need for a tariff hike. The sensitivity of Mundra’s contribution
to coal prices is as follows.
Table 2: Mundra’s valuation contribution
Coal price in FY14E (US$/te) Mundra contribution (Rs/share)
60.0 100
62.5 69
65.0 37
67.5 5
70.0 -27
72.5 -58
75.0 -90
Source: UBS estimates
As of now, we do no include Mundra in our valuation.
We are not aggressive on Mundra UMPP valuation
If we believe that the Mundra project will not be profitable as coal prices are too
high, the project valuation may seem aggressive. Currently, we attribute no
negative value despite the fact that Mundra may not be profitable. If it is not
profitable it will be earning below cost of capital, and the value should be
negative and not zero. In the extreme case, if Tata Power decides to cancel the
project then the value is also negative because significant investment has already
been made in the project. Since the project is still 12-18 months away from full
commissioning, there is the possibility that the states (with whom PPAs were
signed) may agree to a review of the tariff. There is also a possibility that the
company may find alternate means such as expansion in capacity at higher
tariffs, etc.
We also think that as the first UMPP this is a prestigious project for the central
government and it should be keen to find a reasonable resolution of the issues.
However, we will watch for developments and will reassess our view if there is
no change in the environment.
Tata Power
Tata Power (TPC) is an integrated utility, primarily engaged in the generation,
transmission, supply and distribution of electricity in India. It is the largest
private sector generator in India by capacity. TPC holds a 49% stake in a
distribution company in Delhi, North Delhi Power Limited (NDPL). It also has a
51% stake in Power Links, the first public-private partnership for a transmission
line. The company is developing a 4,000MW power plant in Mundra, Gujarat.
Statement of Risk
The main risks to our valuation and price target are: 1) coal prices; 2) execution
delays; 3) currency as both coal imports and their tariffs for Mundra are linked
to the dollar/rupee rate; and 4) regulatory, as its business is spread across
multiple states.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Tata Power
K ey take aways from analyst meet
Tata Power organised an analyst meet this evening
This evening Tata Power organised an analyst meet and the key highlights are as
follows; 1) from current operating capacity of 3,176MW, Tata Power has a target
of 25,000MW generation capacity by 2017, 2) the development at captive coal
blocks of Mandakini and Tubed is on track, 3) the company's strategy on merchant
capacity is cautious and merchant power is unlikely to be >10% in generation mix.
Key points on Mundra Ultra Mega Power Project (UMPP)
Tata Power is developing a 4,000MW imported coal based project and the key
points on this UMPP are, 1) Unit I (800MW) is likely to be commissioned in
March 12 or 1Q FY13, 2) Indonesian government is unlikely to provide any relief
in terms of relaxation from new regulation, 3) Tata Power would explore options to
use lower grade coal if it leads to economic benefit, 4) Beneficiary states would
like to involve central government in any discussion related with tariff revisions.
Mundra remains an overhang for the stock
The Indonesian government has decided to link the price of exported coal with a
benchmark based on international prices. Indonesia is the source of coal for
Mundra project and if spot price is above US$65-70/tonne, the project may not be
profitable in our view. Currently, we don’t include Mundra project in our valuation
and believe that this issue will continue to remain an overhang for the stock.
Valuation: Maintain Buy and price target of Rs1,350
We use a sum-of-the-parts methodology. The power segment comprises 64% of
our valuation), 2) the stake in Bumi’s mines (25%); and 3) investments (11%).
Mundra UMPP remains an overhang
According to news reports, the future of power projects in India based on coal
imported from Indonesia is uncertain. There are press reports that the Indonesian
government has decided to link the price of coal exported from the country with
a benchmark based on international coal prices. Since Indonesia is a key source
of thermal coal in India and there are projects based on Indonesian coal imports
(such as Tata Power’s Mundra ultra mega power project (UMPP)), this could be
a major issue for the sector.
We believe that the Mundra UMPP will remain an overhang for Tata Power in
terms of profitability. The key issue is if the coal spot price is too high (above
US$65-70/tonne), the project may not be profitable.
Table 1: Sample calculation of coal prices (current and post regulation scenarios)
(US$) Current Post change
Coal mining cost (basically cash cost) 35.0 35.0
Royalty (assuming 13.5%) 10.3 14.9
Average Selling price FOB (assumed) 76.0 110.0
Freight and other costs (from Indonesia to India) 10.0 10.0
Average Selling price in India (assumed) 76.0 76.0
Profit (excluding Depreciation etc) 20.7 16.2
Note: For Tata Power, the numbers are approximations based on CY10 figures. Source: UBS estimates
Tata Power has approached the Ministry of Power to request that it consider the
possible changes in Indonesia and allow a tariff hike. However, we think there
are practical difficulties in this: a) the buyers are state governments and the role
of central government is limited in this regard; and b) there are a large number
of buyers for UMPP power output and it may be difficult to convince all the
SEBs about the need for a tariff hike. The sensitivity of Mundra’s contribution
to coal prices is as follows.
Table 2: Mundra’s valuation contribution
Coal price in FY14E (US$/te) Mundra contribution (Rs/share)
60.0 100
62.5 69
65.0 37
67.5 5
70.0 -27
72.5 -58
75.0 -90
Source: UBS estimates
As of now, we do no include Mundra in our valuation.
We are not aggressive on Mundra UMPP valuation
If we believe that the Mundra project will not be profitable as coal prices are too
high, the project valuation may seem aggressive. Currently, we attribute no
negative value despite the fact that Mundra may not be profitable. If it is not
profitable it will be earning below cost of capital, and the value should be
negative and not zero. In the extreme case, if Tata Power decides to cancel the
project then the value is also negative because significant investment has already
been made in the project. Since the project is still 12-18 months away from full
commissioning, there is the possibility that the states (with whom PPAs were
signed) may agree to a review of the tariff. There is also a possibility that the
company may find alternate means such as expansion in capacity at higher
tariffs, etc.
We also think that as the first UMPP this is a prestigious project for the central
government and it should be keen to find a reasonable resolution of the issues.
However, we will watch for developments and will reassess our view if there is
no change in the environment.
Tata Power
Tata Power (TPC) is an integrated utility, primarily engaged in the generation,
transmission, supply and distribution of electricity in India. It is the largest
private sector generator in India by capacity. TPC holds a 49% stake in a
distribution company in Delhi, North Delhi Power Limited (NDPL). It also has a
51% stake in Power Links, the first public-private partnership for a transmission
line. The company is developing a 4,000MW power plant in Mundra, Gujarat.
Statement of Risk
The main risks to our valuation and price target are: 1) coal prices; 2) execution
delays; 3) currency as both coal imports and their tariffs for Mundra are linked
to the dollar/rupee rate; and 4) regulatory, as its business is spread across
multiple states.
No comments:
Post a Comment