Hold Tata Power; target of Rs 109: ICICIdirect.com

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Hold Tata Power; target of Rs 109: ICICIdirect.com

ICICIdirect.com has recommended hold rating on Tata Power with a target of Rs 109, in its February 13, 2012 research report.

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ICICIdirect.com has recommended hold rating on Tata Power with a target of Rs 109, in its February 13, 2012 research report.

"Tata Power reported sales, which were marginally higher than estimates aided by higher coal realisation in Bumi Resources. However, deferred stripping cost charges of Rs  649 crore, adoption of AS11 accounting standards (leading to forex gain of ~Rs 387 crore) and impairment of Rs 162 crore of Mundhra led to a reported PAT of Rs 262 crore. Higher stripping cost led to a decline of 22.5% in PBIT margins of the coal business. Adjusted profit in the quarter was ~Rs520 crore, which was higher than our estimates of Rs 325 crore. We maintain our HOLD rating on the stock as we are concerned about tariff revisions in Mundra in addition to further impairment on Mundhra (if coal costs go up) and lower PLFs at Maithon power plant. Key risks to our call is 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 are the key risks to fair value."

"Standalone PAT was up 174% YoY primarily due to higher fuel costs (pass through) and gain on foreign exchange (Rs274 crore). The company has commissioned the first unit in Mundra - 800 MW. It made an additional impairment of Rs162 crore because in Q2FY12 (previous quarter), the company had not recognised the forex losses on Mundhra. The interest costs were higher by 27.2% QoQ primarily due to commissioning of Maithon Power, interest on short-term loans for NDPL (to fund gap actual tariff hike vs. allowed tariff hike), interest in coal SPVs and capitalisation of ships in Trust Energy."

"At the CMP of Rs 108, the stock is trading at P/E of 23.1x and 18.5x FY12E and FY13E EPS, respectively. Similarly, on P/BV multiple, the stock is trading at 1.9x and 1.7x FY13E, respectively. We have revised our target price from Rs 96 to Rs108 based on higher coal earnings and revised valuation of Mundra UMPP," says ICICIdirect.com research report.

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