TATA POWER- Strong performance across businesses:Edelweiss

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􀂃 Standalone adjusted PAT in line with estimate
Tata Power’s (TPWR) adjusted standalone PAT of INR 2.2 bn (up 18%) was in
line with our estimate of INR 2.23 bn. Consolidated earnings adjusted for forex
gains and extra ordinaries were higher 8% Y-o-Y (at INR 4 bn) due to better
incentives at NDPL and higher coal prices. The higher coal realisation (USD
74/tonne) was largely offset by loss of production due to heavy rains.


􀂃 Mundra UMPP ahead of schedule; Maithon delayed by a quarter
Management guided that with 65% work complete at Mundra UMPP, Unit 1 is
expected ahead of the scheduled CoD of Q2FY12. However, at the Maithon
project, which is 90% complete, Unit 1 is expected in Q4FY11 and unit 2 by
Q1FY12, a delay by 3-4 months compared to the original schedule, due to
diversion of railway line. TPWR is making steady progress in pipeline projects
aggregating ~ 6 GW at three different locations in India. Land acquisition is
progressing at a fast pace in the Orissa project with 300 acres already acquired
and in coastal Maharashtra project it expects to conclude by Q4FY11.

􀂃 Outlook and valuations: Growth on track; maintain ‘BUY’
We are introducing consolidated earnings and are valuing Mundra UMPP in
conjunction with coal mine earnings on NPV basis. We estimate that at USD
70/ton the combined earnings (including losses at Mundra UMPP) would average
~ INR 18.6 bn p.a. over the 25 year term. Based on the fuel security adopted by
the management we believe the impact on average earnings is limited to only
INR 920 mn for every USD 10/ton movement in coal prices. This strong visibility
to earnings with limited downside risk has the potential for re-rating of the stock.
As per our estimates (pl see pg 2), the current market price factors long term
coal term prices of only USD 50/ton(versus Q2FY11 realisations of USD 74/ton).

We have revised down the value of TTSL stake by aligning it with our telecom
team’s valuation metric of EV/EBITDA. Our revised SOTP stands at INR
1,461/share assuming long term average coal price of USD 70/ton for Bumi +
Mundra UMPP. The earnings CAGR of 17% (FY11-14E) due to commissioning of
~5 GW, aided by traction in projects under development, repayment of debt at
coal SPVs, and possible unlocking of value from investment portfolio is likely to
trigger a re-rating in the stock (not factored in our valuation as yet). We
maintain ‘BUY/Sector Outperformer’ rating in the stock.