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MOSL: TATA POWER (Neutral) - Below estimate, reported losses due to one-offs




Motilal Oswal Securities Ltd.


10 Feb 2014





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Tata Power (TPWR IN, Mkt Cap USD2.9b, CMP INR75, Neutral) Nalin Bhatt (NalinBhatt@MotilalOswal.com) 3QFY14 performance below expectations: Tata Power (TPWR) reported consolidated PAT loss of INR749m. However, adjusted for: (1) INR2.3b one time provision in mining companies for rehabilitation and wage settlement owing to termination of mine operator contract, (2) INR1.6b forex loss, (3) INR1.85b prior period revenues in standalone accounts, and (4) INR294m impairment, PAT was INR1.6b, lower than our estimate of INR2.5b. Profitability was impacted by lower standalone contribution (PAT at INR1.3b v/s estimate of INR2b), lower contribution from mining business and higher tax. Realization, gross margin dip at mining companies: Mining companies reported dip in gross realization to USD19.2/ton (below USD20/ton for the first time) from USD25/ton in 2QFY14 and USD30/ton in 3QFY13. The decline in gross realization was due to dip in realization to USD57/ton from USD72/ton in 3QFY13 and USD62/ton in 2QFY14. Production cash cost remained flat QoQ at USD37.4/ton, leading to lower margins. Adjusted EBIT was flat QoQ owing to lower other expenditure, despite lower realization. Mundra, Maithon performance in-line: Maithon project performance was largely in-line, with PAT at INR380m v/s our estimate of INR311m and INR120m in 2QFY14. The management indicated that 150MW out of its 300MW open capacity is tied up under LT PPA and is in the process of tying up the balance capacity too on LT PPA. Mundra UMPP losses widened owing to lower plant availability (PAF) at 69% due to fire at the plant last quarter and stood at INR3.2b, in line with our estimate. Valuation and view: We cut our FY14 EPS estimate by 17% to model for lower standalone profitability and contribution from mining business. We maintain our FY15 EPS estimate. We now expect TPWR to report consolidated PAT of INR7.2b in FY14 (v/s INR8.8b earlier) and INR8.8b in FY15 (up 21%). The stock trades at 20x FY15E EPS and 1.3x FY15E BV (RoE: 9.2%). Neutral.

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