M u n d r a i m p a i r m e n t , f o r e x d e n t m a r g i n s …
Tata Power reported good sales numbers on higher coal realisation
resulting in EBITDA higher than our estimates. As expected, the coal
business was the key driver of profitability (contributing 57% of EBIT).
The company reported a net loss of | 1218 crore on account of 1) forex
loss of | 737 crore, 2) impairment of Mundra UMPP of | 823 crore (on
higher assumed coal costs) and 3) higher tax outgo (due to higher profits
in coal SPV). The company is taxed at 45% for the coal SPV. Adjusted
profit for the quarter was | 401 crore. We maintain our HOLD rating on
the stock as we are concerned about further impairment on Mundhra (if
the coal costs go up). Key risks to our call are 1) decline in international
thermal coal price (reversal of impairment) 2) allowance of a tariff hike in
Mundhra UMPP and 3) monetisation of its investments.
ƒ Other highlights during the quarter and update on Mundhra
Out of the forex loss of | 737 crore, ~ | 669 crore was in the
Mundra SPV (due to foreign loans taken for the project). EBIT
margins in the coal business stand at 27.5%. EBIT margins in the
power segment were at 11.7%, lowest in the last five quarters due
to delay in commissioning of Maithon projects by two months
(resulting in higher power purchase for NDPL – its beneficiary.
Impairment of Mundra is based on coal cost assumption of
$110/tonne for the next three years, $83/ tonne in Year 4 and 2%
escalation thereafter. The beneficiaries of the Mundhra UMPP have
not yet agreed on a tariff hike. The management has hinted at
restructuring of projects – a possible merger between the coal SPV
and Mundra projects.
V a l u a t i o n
At the CMP of | 99, the stock is trading at P/E of 14.3x and 11.5x FY12E
and FY13E EPS, respectively. Similarly, on P/BV multiple, the stock is
trading at 1.6x and 1.5x on FY12E and FY13E book value, respectively.
We have revised our target price from | 104 to | 96 based on the revised
valuation of the Mundra UMPP.
Tata Power reported good sales numbers on higher coal realisation
resulting in EBITDA higher than our estimates. As expected, the coal
business was the key driver of profitability (contributing 57% of EBIT).
The company reported a net loss of | 1218 crore on account of 1) forex
loss of | 737 crore, 2) impairment of Mundra UMPP of | 823 crore (on
higher assumed coal costs) and 3) higher tax outgo (due to higher profits
in coal SPV). The company is taxed at 45% for the coal SPV. Adjusted
profit for the quarter was | 401 crore. We maintain our HOLD rating on
the stock as we are concerned about further impairment on Mundhra (if
the coal costs go up). Key risks to our call are 1) decline in international
thermal coal price (reversal of impairment) 2) allowance of a tariff hike in
Mundhra UMPP and 3) monetisation of its investments.
ƒ Other highlights during the quarter and update on Mundhra
Out of the forex loss of | 737 crore, ~ | 669 crore was in the
Mundra SPV (due to foreign loans taken for the project). EBIT
margins in the coal business stand at 27.5%. EBIT margins in the
power segment were at 11.7%, lowest in the last five quarters due
to delay in commissioning of Maithon projects by two months
(resulting in higher power purchase for NDPL – its beneficiary.
Impairment of Mundra is based on coal cost assumption of
$110/tonne for the next three years, $83/ tonne in Year 4 and 2%
escalation thereafter. The beneficiaries of the Mundhra UMPP have
not yet agreed on a tariff hike. The management has hinted at
restructuring of projects – a possible merger between the coal SPV
and Mundra projects.
V a l u a t i o n
At the CMP of | 99, the stock is trading at P/E of 14.3x and 11.5x FY12E
and FY13E EPS, respectively. Similarly, on P/BV multiple, the stock is
trading at 1.6x and 1.5x on FY12E and FY13E book value, respectively.
We have revised our target price from | 104 to | 96 based on the revised
valuation of the Mundra UMPP.
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