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We hosted Tata Power in our Access India conference. Key takeaways are-
* For Mundra project, Tata power is in talks with power procurers and the
procurers have asked them to respond on cost detail. The tariff relief may
be difficult in the near-term due to lack of ownership of the issue by beneficiaries
or Govt. The question is on the extent of relief, if at all, is considered.
* The breakeven tariff for Mundra is INR2.9/kWh and currently it gets
INR2.35 according to management. However, the company expects
Mundra project to be profitable on stand-alone basis with INR3.2/kWh tariff
at the prevailing coal prices, which is cheaper than new domestic coal
projects due to economies of scale.
* The company is adopting 3 steps loss-reduction measures for Mundra- a)
reduce availability to 80% and PLF to 75%; b) blend low-grade coal- 30%
blending achieved, but need to test-run for 50% or more blending (50%
blending likely to reduce cost by ~10%); c) Adding another 2x800MW unit
at same location to sell at higher tariffs (awaiting EC).
* Regarding transfer of coal assets to Mundra SPV (CGPL), the company is
awaiting Direct Tax code which may impact tax benefits (on dividends). On
cash flow basis, 75% of investment transfer is likely to make CGPL breakeven;
while upon 100% transfer the company will make desired 14% ROE.
* For Naraj marthapur (1320MW), the site is close to a wild life sanctuary
and may not receive EC. However, it may be converted to gas project
whereas alternate land is sought for the coal project.
* While Maithon's U#1 has stabilized and operating at PLF of ~90%, U#2
will start by Apr'12. For U#2, company is building a railway line for coal
evacuation which would be ready by Sep'12 due to land acquisition issues.
Company expects to manage debt servicing even if U#2 works at a lower
PLF initially.
* For coal assets in Indonesia, company has adopted cost cutting measures:
1) new 54MW power plant to reduce diesel requirement; 2) Electrical
draglines to replace diesel ones to become all-weather; 3) Coal conveyed
via all-weather belts from pits.
* Tata power has formed a 50:50 JV with Exxaro Resources to pursue power
projects in SA, Namibia and Botswana, to expand its overseas ambitions.
* NDPL's INR1bn per month receivables have reduced to INR200mn/
month. AT&C losses are around 12.5% and is targeting single digit in next
2 years.
We have a Hold recommendation with INR105/sh target price.
