Dec 01, 2016 06:06 PM IST | Source:

Buy Tata Power; target of Rs 84: Centrum

Centrum is bullish on Tata Power has recommended buy rating on the stock with a target price of Rs 84 in its research report dated November 30, 2016.

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Centrum's research report on Tata Power

We maintain our Buy rating, with a revised TP of Rs 84 (Rs 85 earlier). We highlight that EBITDA earnings were momentarily dented by non-recurring provisions of Rs 0.7bn and MAT tax credit of Rs 3.9bn. Overall earnings remain buoyant backed by PAF recovery in Mundra UMPP, resilient coal segment and higher dividend income of Rs 2.1bn. We remain optimistic at current price, and our valuation factors in (1) recovery of compensatory tariff (CT), (2) cash receipt of USD401mn (earlier USD510mn) post stake sale in Arutmin mine and (3) jump in overall earnings. Further, key positives are firm visibility on reduction in regulatory assets, refinancing of loans, consistent cost efficiency and resilient earnings in its coal business.

We value individual projects/businesses either using DCF or assigning a multiple to its book value to arrive at our TP of Rs 84. A scenario of zero tariff hike in CT by SC would drag our TP to Rs 69. Key downside risks are (1) low or zero tariff hike for Mundra and (2) materialisation of contingent liabilities.

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