Mundra tariff fixing gets delayed… • Tata Power :: ICICI Securities, link

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Mundra tariff fixing gets delayed…
• Tata Power (TPL) reported a 4.2% YoY decline in revenue to | 8,394
crore, due to 3.0% YoY decline across its power business to | 6,201
crore as generation & sales across the standalone business declined
8% & 7% YoY to 312 crore unit & | 348 crore unit, respectively, due
to forced outage of Unit 8 and low generation at Unit 6
• Coal SPV’s reported EBIT stood at | 159 crore (down 55.8% YoY)
due to 12.4% YoY fall in realisation to $54 in Q2FY15 vs. $62 YoY
due to weak international demand. Coal production declined 8% YoY
to 19.9 MT, sales increased 4% YoY to 19.7 MT
• EBITDA declined 16.7% YoY to | 1,692 crore in Q2FY15 due to
24.3% YoY decline across coal margin to $18.4
• Mundra reported a loss of | 274 crore. Forex loss came in at | 121
crore vs. | 355 crore YoY. Adjusting this, TPL reported a loss of | 17
crore below our estimate of a PAT of | 108 crore for Q2FY15. On a
reported basis, loss came in at | 78 crore for the quarter
Sectoral woes impact earnings
Being the largest integrated power company in India with an installed
capacity of 8,560 MW, Tata Power (TPL) has been impacted by various
sectoral woes like higher fuel price, increased regulated assets and huge
debt level. The change in Indonesian policy to link the export price of its
coal with the international index in September 2011 led to an increase of
the generation cost for TPL’s 4000 MW Mundra UMPP to ~| 2.85/Kwh
(total fixed + variable cost) against a fixed price sale agreement at
| 2.26/Kwh for 25 years with state discoms. This led to an erosion of close
to | 3,574 crore of TPL’s networth in the past three years. Furthermore,
the cost of carrying the regulatory assets at its Delhi and Mumbai
operations (~| 6,781 crore), along with a sliding rupee, has led to a
working capital crunch. This resulted in increased debt of ~| 35,171 crore
as on FY14 (D/E of 3.3x) vs. | 18,500 crore in FY10.
Supreme Court stays APTEL’s order related to CGPL’s tariff hike
The SC has stayed APTEL’s order to allow a compensatory tariff hike for
TPL’s Mundra UMPP. Aptel had allowed a | 0.36/Kwh tariff hike for TPL’s
Mundra UMPP project to compensate these projects for losses incurred
due to a hike in Indonesian coal prices. However, the verdict will not have
any financial impact on TPL as the company had earlier refrained from
incorporating the revised tariff rate after APTEL’s positive order. We
believe that any further delay in tariff realisation for Mundra project will
continue to significantly impact the feasibility of the project. Losses at
Mundra has already eroded ~| 3,574 crore of TPL’s networth in the past
three years. Furthermore, a delay in final verdict will negatively impact
investor’s sentiments.
Revising estimates downward; maintain BUY
Tata’s Mumbai operation continues to remain strong, providing stable
cash flow. However, the SC staying APTEL’s interim order is likely to
further delay the tariff hike, which will negatively impact its financials for
FY15E. Also TPL will now have to make fresh bid to regain its lost coal
blocks which would further strain its balance sheet. We have revised our
earning estimate downward for FY15E to factor in the fall in coal
realisation, lower margin and delay in finalisation of CGPL tariff.
Accordingly, we revise our SOTP target price to | 99 vs. | 107 earlier and
maintain our BUY rating for the company

LINK
http://content.icicidirect.com/mailimages/IDirect_TataPower_Q2FY15.pdf