23 December 2011

Tata Power (XTAWF, Neutral) BofA Merrill Lynch,

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Tata Power (XTAWF, Neutral)
Bear Case: What can go wrong
􀂄 Expect coal prices to fall, we assume a 25% cut in FY13 and 26% for our
long term estimates for coal prices at Indonesian coal mines. Further, we
assume a 25% cut in market linked coal prices for Mundra UMPP.
􀂄 Assume 13-19% cut in FY13 & 14E merchant tariff at Parent which led to 8-
12% cut in Parent EPS.
􀂄 Consequently, we estimate a slow growth in consol. sales at 11% / 13% over
FY13/14E (vs 26% in FY12E) and EBITDA margin of 19% /17% (vs 26% in
FY12E) respectively.
􀂄 We expect the consol EPS to fall by 64% in FY13E.
􀂄 We assumed a 25% discount to subsidiary / investments value.
Base Case:
􀂄 In the base case, assumed that Mundra UMPP will not be able to get 5 years
fixed price coal, therefore, it has to source the same at market rate.
􀂄 Assumed a 15% holdco discount to subsidiary / investments value.
􀂄 In the base case, we expect the stock could trade at Rs127/share at 1.9x
FY13E Consol. P/BV.
Risk-Reward: Unfavorable
􀂄 In the bear case, we expect the stock could trade at Rs75/share at 1.18x
FY13E Consol. P/BV.
􀂄 In the base case, we expect the stock could trade at Rs127/share at 1.9x
FY13E Consol. P/BV.
􀂄 Overall, the risk-reward appears unfavorable.

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