Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Tata Power
Mundra downside factored in
Event
In our view, TPWR’s stock price is fully factoring in the downside of the
Mundra UMPP, with the stock losing US$1.6bn market cap in the past two
months. We apply much higher fuel costs at Mundra and subsequently reduce
our price target from Rs1,553 to Rs1,190. Our earnings changes are more
volatile, reflecting thermal coal price upgrades and INR depreciation. While
there may be few near-term catalysts, below Rs1000/share we do see longerterm
value upside (+20%).
The clear upside for the stock is any tariff lift at Mundra (+1% to tariff, +1.4%
to valuation), while we also see scope for ongoing thermal coal price strength
(+1% thermal coal price, +1.2% valuation) and to a lesser extent a
depreciating INR.
Impact
Mundra – market ahead of sell-side: In our view, the downside of the
Mundra UMPP is understood and now factored into the stock, even if we’re
yet to see further FY13/FY14 consensus earnings cuts. The most material
commentary at the TPWR analyst meet during the week was the company’s
view that TPWR could operate Mundra at around 70-75% PLF, a tool to lower
losses. Likelihood of getting a higher tariff? Longer term, we think economics
will prevail, but perhaps not before politics in the near term, and therefore it
could take time. A tariff hike is not being factored into the stock price in our
view (or our valuation), although any positive surprise here could create
upside. It appears a free option at these prices. As an example, if TPWR
could achieve its cost of capital for the project, we would need to upgrade our
valuation by ~22%.
Thermal coal price strength, Macquarie increases forecast: We increase
our thermal coal price forecasts by +8% FY13, +15% FY14, while lowering
INR currency estimates. In addition to delays at Mundra, this has supported
our FY12/FY13 earnings forecasts especially, despite getting a lot more
aggressive on our Mundra forecasts (full operations captured FY14 onwards).
More detail around our thermal coal price view in the note.
Earnings and target price revision
FY12 -5%, FY13 -2%, FY14 -21%. Price target reduced from Rs1,553 to
Rs1,190.
Price catalyst
12-month price target: Rs1,190.00 based on a Sum of Parts methodology.
Catalyst: strong coal earnings should help in 2Q12, although the market will
likely want to wait and see the financial impact of Mundra post CoD in 4Q12.
Action and recommendation
Retain Outperform recommendation.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Tata Power
Mundra downside factored in
Event
In our view, TPWR’s stock price is fully factoring in the downside of the
Mundra UMPP, with the stock losing US$1.6bn market cap in the past two
months. We apply much higher fuel costs at Mundra and subsequently reduce
our price target from Rs1,553 to Rs1,190. Our earnings changes are more
volatile, reflecting thermal coal price upgrades and INR depreciation. While
there may be few near-term catalysts, below Rs1000/share we do see longerterm
value upside (+20%).
The clear upside for the stock is any tariff lift at Mundra (+1% to tariff, +1.4%
to valuation), while we also see scope for ongoing thermal coal price strength
(+1% thermal coal price, +1.2% valuation) and to a lesser extent a
depreciating INR.
Impact
Mundra – market ahead of sell-side: In our view, the downside of the
Mundra UMPP is understood and now factored into the stock, even if we’re
yet to see further FY13/FY14 consensus earnings cuts. The most material
commentary at the TPWR analyst meet during the week was the company’s
view that TPWR could operate Mundra at around 70-75% PLF, a tool to lower
losses. Likelihood of getting a higher tariff? Longer term, we think economics
will prevail, but perhaps not before politics in the near term, and therefore it
could take time. A tariff hike is not being factored into the stock price in our
view (or our valuation), although any positive surprise here could create
upside. It appears a free option at these prices. As an example, if TPWR
could achieve its cost of capital for the project, we would need to upgrade our
valuation by ~22%.
Thermal coal price strength, Macquarie increases forecast: We increase
our thermal coal price forecasts by +8% FY13, +15% FY14, while lowering
INR currency estimates. In addition to delays at Mundra, this has supported
our FY12/FY13 earnings forecasts especially, despite getting a lot more
aggressive on our Mundra forecasts (full operations captured FY14 onwards).
More detail around our thermal coal price view in the note.
Earnings and target price revision
FY12 -5%, FY13 -2%, FY14 -21%. Price target reduced from Rs1,553 to
Rs1,190.
Price catalyst
12-month price target: Rs1,190.00 based on a Sum of Parts methodology.
Catalyst: strong coal earnings should help in 2Q12, although the market will
likely want to wait and see the financial impact of Mundra post CoD in 4Q12.
Action and recommendation
Retain Outperform recommendation.
No comments:
Post a Comment