Hold Tata Power; target Rs 116: SPA Research

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Hold Tata Power; target Rs 116: SPA Research

SPA Research has recommended hold rating on Tata Power (TPCL) with a target of Rs 116, in its February 17, 2012 research report.

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SPA Research has recommended hold rating on Tata Power (TPCL) with a target of Rs 116, in its February 17, 2012 research report.

"Tata Power (TPCL) registered 6% QoQ and 50% YoY increase in net sales to INR 66 bn. The company recorded net profit of INR 2.9 bn vs loss of INR 11.9 bn in Q2FY12 and profit of INR 4.4 bn in the corresponding quarter last year. However, TPCL's net profit is not comparable as the company has changed its accounting policy in accordance with AS11 (leading to forex gain of INR~ 3870 mn), charged deferred stripping cost amounting to INR 6490 mn and accounted provision for impairment to the tune of INR 1620 mn for Mundra project."

"Revenue from coal business increased by 25% QoQ and 61% YoY to INR 27 bn, which is mainly due to higher realization and higher quantity of coal sold. Coal sales for Q3FY12 stood at 17.5m tonnes, up by 7% QoQ and 10% YoY. Coal Realisation stood at USD95/tonne (up by 25% YoY and flat on QoQ basis) and cash costs stood at USD41/tonne (higher by 3% QoQ and 24% YoY). Revenue contribution from coal business increased from 34% to 40% QoQ, while EBIT contribution declined from 57% to 22% sequentially. In view of the uncertainty involved in estimating the average stripping ratio for the life of its mines, KPC has charged the entire deferred stripping costs accumulated in prior years to the P/L Account. Hence Deferred Stripping Costs (Net) was higher by INR 6490 mn mainly due to change in accounting estimates by KPC."

"We have reduced our EPS estimates for FY12E from INR 8.53 to INR 2.39 and FY13E from INR 10.20 to INR 7.34 to factor in the impairment charges for Mundra project and higher stripping cost. Hence, we downgrade TPCL to HOLD with a revised target price of INR 116 per share (INR 121 earlier) based on SOTP valuation approach. At CMP, the stock is trading at P/E of 15.4x FY13E EPS and P/BV of 0.75x FY13E book value on consolidated basis," says SPA Research report.

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