Hold Tata Power; sell Adani Power, says Emkay
Emkay Global Financial Services has come out with its report on power sector. According to the research firm, one can hold Tata Power and sell on Adani Power with a target price of Rs 95 and Rs 40 respectively.
April 08, 2013 / 09:59 IST
Emkay Global Financial Services has come out with its report on power sector. According to the research firm, one can hold Tata Power and sell on Adani Power with a target price of Rs 95 and Rs 40 respectively.
"CERC's order on Adani Power tariff hike petition ordering ‘compensatory tariff' due to abnormal price escalation in Indonesian coal clearly indicates a positive intent. Given this backdrop, we expect similar order in TPWR case. However, we believe final order might take some time and the deadline of 30th Apr (for committee's report) may be extended.Though the intent in the order is to make the project viable, which clearly hints at the quantum, but specifically the order indicates tariff hike equal to net impact of taxes and duties due to Indonesian coal price escalation. We highlight following from the order – "The Committee shall go into the impact of the price escalation of the Indonesian Coal on the project viability and obtain all the actual data required with due authentication from independent auditors to ascertain the cost of import of Coal from Indonesia and suggest a package for compensatory tariff which can be allowed to the Petitioner over and above the tariff in the PPAs." Please note that Mr. S. Jayaraman (Member, CERC), one of the four members (including the Chairman) has issued a dissent order along with the main order.We believe that the merchant sale suggestion by CERC is very positive and can go a long way in enabling SEBs to justify tariff hike. As per our back of the envelope calculation, merchant sale beyond the target availability can result in extra revenue of Rs3-5bn to be shared between project developer and SEBs.Going by the CERC order, we expect Rs0.16-Rs0.20/unit tariff hike for Adani Power and on similar principles, Rs0.22-Rs0.27/unit for Tata Power. (Please see Exhibit 1 for detailed calculations). In both the cases, NPV increase is about 20 percent of current market cap of the respective companies. We recommend a trading Buy on Tata Power as we believe that, at the current market price of Rs95/sh, the stock is almost available at base value without tariff hike, and with a tariff hike, we see about 12-15 percent upside potential from the current level. However, we recommend Sell on Adani power as 1) part (50 percent) of tariff hike already factored in the price, 2) base value could be much lower than current price of Rs47/sh, as there are lots of other issues in APWR (unlike in TPWR) apart from the aforesaid tariff hikes. We have Hold on Tata Power with a PT of Rs95/sh and Sell on Adani Power with a PT of Rs40/sh," says Emkay Global Financial Services research report.Non-Institutions holding more than 90% in Indian cosDisclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. 
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