Lower coal realisation hits earnings… • Tata Power :: ICICI Securities, report

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Lower coal realisation hits earnings… • Tata Power (TPL) reported a marginal 1.2% YoY rise in revenue to | 8,807 crore, as 9.8% YoY growth across its power business to | 6,546 crore (driven by higher generation across Mundra) was offset by 18% YoY decline across coal business • Coal SPV’s reported EBIT stood at | 294.4 crore vs. | 17 crore YoY, primarily due to a one forex gain of | 413 crore received during the quarter. After adjusting for the same, coal SPV reported a loss of | 119 crore due to 11% and 9% fall in coal volume and realisation to 20.8 MT and $45 in respectively Q3FY15. • EBITDA declined 15.4% YoY to | 1,512 crore in Q3FY15 while margin declined 336 bps YoY to 17.2% • Mundra reported a loss of | 243 crore. Forex gain came in at | 422 crore vs. loss of | 160 crore YoY. Adjusting this, TPL reported a loss of | 13 crore below our estimate of a PAT of | 103 crore for Q3FY15. On a reported basis, PAT came in at | 198 crore for the quarter Sectoral woes impact earnings Being the largest integrated power company in India with an installed capacity of 8,560 MW, Tata Power (TPL) has been impacted by various sectoral woes like higher fuel price, increased regulated assets and huge debt level. The change in Indonesian policy to link the export price of its coal with the international index in September 2011 led to an increase of the generation cost for TPL’s 4000 MW Mundra UMPP to ~| 2.85/Kwh (total fixed + variable cost) against a fixed price sale agreement at | 2.26/Kwh for 25 years with state discoms. This led to an erosion of close to | 3,817 crore of TPL’s networth in the past three years. Furthermore, the cost of carrying the regulatory assets at its Delhi and Mumbai operations (~| 6,781 crore), along with a sliding rupee, has led to a working capital crunch. This resulted in increased debt of ~| 40,874 crore as on 3QFY15 (D/E of 3.7x) vs. | 18,500 crore in FY10. Supreme Court stays APTEL’s order related to CGPL’s tariff hike The SC has stayed APTEL’s order to allow a compensatory tariff hike for TPL’s Mundra UMPP. Aptel had allowed a | 0.36/Kwh tariff hike for TPL’s Mundra UMPP project to compensate these projects for losses incurred due to a hike in Indonesian coal prices. However, the verdict will not have any financial impact on TPL as the company had earlier refrained from incorporating the revised tariff rate after APTEL’s positive order. We believe that any further delay in tariff realisation for Mundra project will continue to significantly impact the feasibility of the project. Losses at Mundra have already eroded ~| 3,817 crore of TPL’s networth in the past three years. Furthermore, a delay in final verdict will negatively impact investor’s sentiments. Maintain estimate and BUY rating Tata’s Mumbai operation continues to remain strong, providing stable cash flow. However, the SC staying APTEL’s interim order is likely to further delay the tariff hike, which will negatively impact its financials for FY15E. Also TPL will now have to make fresh bid to regain its lost coal blocks which would further strain its balance sheet. We have maintained our estimates as we had revised our earning estimate downward for FY15E & FY16E in Q2FY15 to factor in lower coal realisation and delay in finalisation of CGPL tariff. Accordingly, we maintain our SOTP target price to | 99 and maintain our BUY rating for the company.

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http://content.icicidirect.com/mailimages/IDirect_TataPower_Q3FY15.pdf