Coal downturn bites Tata Power :: HDFC Sec, report

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Coal downturn bites Tata Power reported a loss of Rs 2.4bn (adjusted for forex gain and other one offs) which was way below our PAT estimate of Rs 920mn. Drop in profitability was primarily due to poor performance of the coal business. The company has not booked compensation (Rs 2.1/6.0bn for 3Q/9MFY15) due from beneficiaries of Mundra UMPP. APTEL will hear the petition filed by beneficiaries of Mundra UMPP on 11th Feb. Meanwhile, SC will also be hearing on Tata Power’s plea to include Force majeure/change of law clause in its response to the aforementioned petition. We adjust our earnings to factor in no compensatory tariff in FY15 and lower coal price assumption (US$55/tonne vs. 65 earlier). Consequently, we estimate the company to report a loss in FY15 (vs. PAT of Rs 15bn earlier) and our FY16E EPS is reduced by 30%. With no medium term growth triggers, we retain Neutral with an SOP based TP of Rs 95/sh.  CGPL reported a loss of Rs 2.4bn. Units sold were 6.7bn, realisation was Rs 2.4/unit and fuel cost was Rs 1.77/unit. PAF for 2QFY15 was 85% (up 1,800bps YoY). Even after adjusting for compensation, CGPL would have reported a loss of Rs 300mn in the quarter.  Maithon Power reported a profit of Rs 1,070mn. Profit for the quarter included Rs 680mn of prior period profits as CERC’s final tariff order for the plant came through during the quarter.  Realisation from the KPC and Arutmin mines was down 8% YoY to US$ 52/ton. Cash cost also declined by 8% YoY. Adjusted for forex gains, coal segment reported a negative EBIT of Rs 1.2bn for the quarter. Coal prices remain subdued and coal business profitability will remain under pressure for FY16.  Company did not disclose the consideration which it will pay for acquisition of Ideal Power (270MW) assets. Further, company’s proposed sale of Arutmin mines is also getting delayed due to depressed coal prices.  With no major medium term growth plans and subdued global coal prices, we don’t see any positive triggers for the stock. CMP and our estimates factor in compensation for CGPL and any denial/reduction of the same is a key risk to our view. Retain Neutral.

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