Motilal Oswal neutral on Tata Power

“Tata Power's stock price has corrected by 30%+ over past 6 months, given concerns surrounding losses at Mundra UMPP, delayed commissioning at Maithon, lower possible production ramp-up at KPC/Arutmin mines, etc. TPWR is relatively better placed amongst the other IPPs given large part of power business on regulated business, integrated investment providing cushion for UMPP, etc.”

“We believe that most negatives are getting factored in the valuations, and upside possibilities could be 1) savings in fuel cost at Mundra UMPP due to blending of low GCV coal (~20% of fuel cost), 2) tax efficient structure for Mining HOLDCO/UMPP, 3) possible upwards revision for UMPP tariff and 4) reversal of impairment provision given softening coal prices. TPWR provided for MTM losses of INR7.4b in 2QFY12, but it is comfortably positioned as while translational gains from higher earnings at KPC / Arutmin mines can be retained; the increased costs are a pass through by way of higher tariffs in Mundra UMPP.”

“We have cut our FY12/13 earnings by 8% / 3% to factor in lower production from KPC/Artumin mines (73m ton in FY14, vs 83 m tons), lower contribution from Maithon project (Unit 2 CoD in Sep 2012), lower merchant contribution (100MW Trombay transferred on regulated basis), and tax on dividend received from mining HOLDCO to meet cash flow commitments at UMPP (while dividend gets eliminated in consolidation, tax remains). We now expect TPWR to report consolidated EPS of INR8/sh for FY12E (up 8% YoY) and INR9/sh for FY13E (up 13.4% YoY). SOTP based TP stands at INR91/sh. Neutral, says Motilal Oswal research report.

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