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Tata Power (TPWR) - Qtr. Update - Dtd. - February 11, 2013




Axis Capital Limited


12 Feb 2013





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Tata Power’s Q3 adj. PAT of Rs 3.2 bn was above our estimate due to lower cost of production (USD 41/t; down 9% QoQ) at Indonesian coal mines (Bumi). Coal sales volume ramped-up to 21 mn tonnes (up 34% QoQ). Power business was in line, with Maithon project continuing to report losses. Adjustments to reported loss of Rs 3.3 bn include: (a) impairment charge of Rs 6 bn, (b) gain of Rs 1.3 bn from prior period sales, (c) Rs 0.6 bn stripping cost write-off, and (d) Rs 0.8 bn forex loss. We revise our FY13 estimate upwards to Rs 5.3 (Rs 4.1 earlier) to account for ramp-up in production at Bumi. We also rollover to FY15E with revised SoTP-based TP of Rs 98 (Rs 94 earlier). The company is going slow on expansion projects until clarity emerges on Mundra UMPP tariff revision. Hence no near term triggers exist. Upgrade to HOLD given marginal downside from CMP. At CMP of Rs 98, the stock trades at 19x FY14E EPS of Rs 5.8 and 16x FY15E EPS of Rs 6.9 and 1.6x FY14E BVPS of Rs 53 and 1.5x FY15E BVPS of Rs 58. Coal business: Volume ramps up, cash costs down Cost of production declined due to: (a) ramp up in production and inventory liquidation resulting in operating leverage benefit, and (b) strip ratio declined to 9.4 from 10.4 in Q2 due to higher production from mines with low stripping ratio. Management guided for production target of 75 mn tonnes in CY13. Mundra UMPP: Tariff hike of Rs 0.5/Kwh? Tata Power is receiving fuel charge in PPA at Rs 1.5/Kwh against actual cost of Rs 2/Kwh. Its plea to CERC for tariff review is due to change in Indonesian laws which has led to higher fuel cost. Hence, the company may get a tariff hike for Rs 0.5/Kwh on this account (Q3 realization of Rs 2.45/Kwh). However, we have not built-in any tariff revision as the matter is currently subjudice. Regards, Bhavin Vithlani (Executive Director – Power & Cap Goods) Institutional Equity Research Axis Capital Ltd. Tel.: + 91 22 4325 1144 Ajay Nandal (AVP – Power) Institutional Equity Research Axis Capital Ltd. Tel.: + 91 22 4325 1120

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