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TPWR has become a play on imported coal, with Mundra UMPP / Bumi SPV accounting for an
estimated 36% of its SOTP. We believe development projects (especially with captive coal
blocks) will not contribute to earnings before FY16; until then earnings will stagnate, largely driven
by coal price movement. Hold.
Exposure to commodity earnings to rise from 9% in FY08 to 65% in FY13F
Tata Power’s (TPWR) stake purchase in Bumi SPV has been a masterstroke, in our view. The
SPV’s contribution to TPWR consolidated profit has been increasing steadily from 9% in FY08 to
44% in FY11, and we expect it to increase to 65% in FY13F. Also, we estimate Bumi SPV
accounts for 45% of TPWR’s SOTP, which is partially negated by 9% on losses suffered by
Mundra UMPP. Over the next few years, earnings for the company will largely be driven by
imported coal price movements, in our view.
We expect losses of Rs9bn for Mundra UMPP in FY14F
The Indonesian coal reference price has impacted the fortunes of Mundra UMPP, with net spot coal
exposure increasing to 55% of the total from 30%. We forecast that losses will peak at Rs9bn in FY14,
the first full year of the project’s operations, vs Rs4bn if net exposure was 30%. TPWR is trying to
offset this impact by using lower-grade coal than the 5,300 kcal/kg it had intended, and operate at a
lower plant load factor (PLF), while maintaining a normative availability at 80%.
New projects with captive coal blocks will be commissioned from FY16, in our view
TPWR has received all major clearances for the 660MW Naraj Marthapur plant in Orissa, which
will run on captive coal from Mandakini block. As for Tiruldih IPP (1,980MW), the company
expects to issue notice to proceed (NTP) for the project around 4Q12, with coal sourced from
Tubed captive coal block (2.4mtpa), Tata Steel, and possibly from JSMDC. Both the plants are
likely to be operational from FY16 and should have superior profitability vs regulated return
projects. However, in the interim, we believe TPWR’s earnings and valuation will stagnate, as we
expect no major projects to be commissioned.
We believe growth will require stake sale of non-core assets and/or equity dilution
TPWR has diluted around 20% of its equity (FY07-11) to pursue growth projects. As per our
estimates, the internal cash flows will not be sufficient to fund future projects, and TPWR will
need to sell stakes in non-core assets/SPVs, and/or dilute equity in FY13/FY14.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
TPWR has become a play on imported coal, with Mundra UMPP / Bumi SPV accounting for an
estimated 36% of its SOTP. We believe development projects (especially with captive coal
blocks) will not contribute to earnings before FY16; until then earnings will stagnate, largely driven
by coal price movement. Hold.
Exposure to commodity earnings to rise from 9% in FY08 to 65% in FY13F
Tata Power’s (TPWR) stake purchase in Bumi SPV has been a masterstroke, in our view. The
SPV’s contribution to TPWR consolidated profit has been increasing steadily from 9% in FY08 to
44% in FY11, and we expect it to increase to 65% in FY13F. Also, we estimate Bumi SPV
accounts for 45% of TPWR’s SOTP, which is partially negated by 9% on losses suffered by
Mundra UMPP. Over the next few years, earnings for the company will largely be driven by
imported coal price movements, in our view.
We expect losses of Rs9bn for Mundra UMPP in FY14F
The Indonesian coal reference price has impacted the fortunes of Mundra UMPP, with net spot coal
exposure increasing to 55% of the total from 30%. We forecast that losses will peak at Rs9bn in FY14,
the first full year of the project’s operations, vs Rs4bn if net exposure was 30%. TPWR is trying to
offset this impact by using lower-grade coal than the 5,300 kcal/kg it had intended, and operate at a
lower plant load factor (PLF), while maintaining a normative availability at 80%.
New projects with captive coal blocks will be commissioned from FY16, in our view
TPWR has received all major clearances for the 660MW Naraj Marthapur plant in Orissa, which
will run on captive coal from Mandakini block. As for Tiruldih IPP (1,980MW), the company
expects to issue notice to proceed (NTP) for the project around 4Q12, with coal sourced from
Tubed captive coal block (2.4mtpa), Tata Steel, and possibly from JSMDC. Both the plants are
likely to be operational from FY16 and should have superior profitability vs regulated return
projects. However, in the interim, we believe TPWR’s earnings and valuation will stagnate, as we
expect no major projects to be commissioned.
We believe growth will require stake sale of non-core assets and/or equity dilution
TPWR has diluted around 20% of its equity (FY07-11) to pursue growth projects. As per our
estimates, the internal cash flows will not be sufficient to fund future projects, and TPWR will
need to sell stakes in non-core assets/SPVs, and/or dilute equity in FY13/FY14.
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