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UBS Investment Research
Tata Power
C oal is key [EXTRACT]
Fuel security is the key feature
After the 20% share price correction in the past two weeks, we are positive on Tata
Power. Apart from high corporate governance standards, we think captive coal is a
key strength of Tata Power. We believe that ownership of fuel is a key factor in the
success of a generation company (Tata Power’s proportionate share in the coal
output of Bumi Resourses’ KPC and Arutmin mines is 20mtpa).
Mundra overhang, we lower our price target 16%
According to media reports, the Indonesian government has decided to link the
price of exported coal with a benchmark based on international coal prices. It is
likely that the new rule will be applicable retrospectively on all contracts. Since
Indonesia is the source of coal for the Mundra UMPP, this could be a major issue
for the project. If the spot price is too high (above US$65-70/tonne), Mundra may
not be profitable. We exclude Mundra from our valuation and also increase our
discount on investments. Hence we cut our price target from Rs1,600 to Rs1,350.
We lower FY12/FY13/FY14 EPS estimates 8%
We lower our FY12/FY13/FY14 EPS estimates from Rs93.32/105.99/110.97 to
Rs85.52/97.71/102.21 based on lower coal production. We lower our coal
production forecast 4-7% over FY12-14. We believe this is reasonable as
production growth has been lower than expected previously.
Valuation: Maintain Buy; new price target of Rs1,350
We use a sum-of-the-parts methodology. The power segment comprises 64% of
our valuation), 2) the stake in Bumi’s mines (25%); and 3) investments (11%).
Tata Power
Tata Power (TPC) is an integrated utility, primarily engaged in the generation,
transmission, supply and distribution of electricity in India. As the largest
private sector generator in India by capacity, it owns an aggregate capacity of
2,379MW in the states of Maharashtra (1,870 MW), Jharkhand (428 MW) and
Karnataka (81 MW). TPC holds a 49% stake in a distribution company in Delhi,
North Delhi Power Limited (NDPL). It also has a 51% stake in Power Links, the
first public-private partnership for a transmission line. The company is
developing a 4,000MW power plant in Mundra, Gujarat.
Statement of Risk
We believe the key risks are regulatory, execution, and the timely and costeffective
fuel procurement for its power projects.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Tata Power
C oal is key [EXTRACT]
Fuel security is the key feature
After the 20% share price correction in the past two weeks, we are positive on Tata
Power. Apart from high corporate governance standards, we think captive coal is a
key strength of Tata Power. We believe that ownership of fuel is a key factor in the
success of a generation company (Tata Power’s proportionate share in the coal
output of Bumi Resourses’ KPC and Arutmin mines is 20mtpa).
Mundra overhang, we lower our price target 16%
According to media reports, the Indonesian government has decided to link the
price of exported coal with a benchmark based on international coal prices. It is
likely that the new rule will be applicable retrospectively on all contracts. Since
Indonesia is the source of coal for the Mundra UMPP, this could be a major issue
for the project. If the spot price is too high (above US$65-70/tonne), Mundra may
not be profitable. We exclude Mundra from our valuation and also increase our
discount on investments. Hence we cut our price target from Rs1,600 to Rs1,350.
We lower FY12/FY13/FY14 EPS estimates 8%
We lower our FY12/FY13/FY14 EPS estimates from Rs93.32/105.99/110.97 to
Rs85.52/97.71/102.21 based on lower coal production. We lower our coal
production forecast 4-7% over FY12-14. We believe this is reasonable as
production growth has been lower than expected previously.
Valuation: Maintain Buy; new price target of Rs1,350
We use a sum-of-the-parts methodology. The power segment comprises 64% of
our valuation), 2) the stake in Bumi’s mines (25%); and 3) investments (11%).
Tata Power
Tata Power (TPC) is an integrated utility, primarily engaged in the generation,
transmission, supply and distribution of electricity in India. As the largest
private sector generator in India by capacity, it owns an aggregate capacity of
2,379MW in the states of Maharashtra (1,870 MW), Jharkhand (428 MW) and
Karnataka (81 MW). TPC holds a 49% stake in a distribution company in Delhi,
North Delhi Power Limited (NDPL). It also has a 51% stake in Power Links, the
first public-private partnership for a transmission line. The company is
developing a 4,000MW power plant in Mundra, Gujarat.
Statement of Risk
We believe the key risks are regulatory, execution, and the timely and costeffective
fuel procurement for its power projects.
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