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Reacting negatively to the Supreme Court’s order on compensatory tariff, shares of Tata Power and Adani Power took a hit on the Street on Wednesday.
Adani Power and Tata Power had an intraday fall of 5.7 percent and 1.7 percent, respectively and brokerages too had cautious views on the stocks.
The Supreme Court set aside the Central Electricity Regulatory Commission (CERC) order of allowing compensatory tariff to Tata Power and Adani Power on the grounds of force majeure (meaning the circumstances are unforeseeable).
The companies had sought the regulator’s involvement stating they suffered losses due to high cost of imported coal. In April 2013, CERC allowed Tata and Adani Power to hike power tariffs to compensate from a change in Indonesian law which unexpectedly increased coal cost in 2010.
Brokerages too have maintained a weaker outlook on the stocks.
CLSA has a buy call on Tata Power and recommends it buying on correction. The research firm sees no impact on Tata Power’s estimates after the Supreme Court’s ruling on compensatory tariffs.
The company may cut cost by shifting to cheaper coal against Melawan currently. Tata Power Mundra UMPP claimed under- recovery of 70 paise/kwh during Q3, it said in its report.
Nomura too has a buy call on the stock and sees no near term impact on earnings forecast, but the ruling closes out any ‘option’ value from any tariff relief in Mundra PPA.
“Prima facie, we do not foresee Tata Power curtailing the operations at Mundra following this judgment. Ceteris paribus, while the plant will continue to need funding from the parent due to fuel cost under-recovery in the foreseeable future, reduction in the fixed costs on account of debt repayment should see the loss at the bottom line recede,” it said in the report.
Meanwhile, Bank of America Merrill Lynch (BofAML) has retained its underperform rating on the stock due to its ongoing litigation for Mundra UMPP, near term cash shortfall on likely delays in recovering cash flows and cash losses at Mundra UMPP and potential equity dilution to reduce leverage.
Meanwhile, on Adani Power, CLSA feels the recovery of USD 578 million to Adani Power by Adani Enterprises looks tough after the apex court’s order. Furthermore, Adani Power is falling short to service 12 percent of debt even at 90% operating PLF.
Nomura too said that the court’s order was negative for debt servicing. “This verdict could impact debt servicing by Adani Power, which already had a stretched balance sheet,” it said in its report.
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