Shares of Tata Power jumped over 7 percent while Adani Power soared 5 percent in intraday on Central Electricity Regulatory Commission (CERC) tariff order. In a landmark judgment, the electricity regulator has allowed both the firms higher tariff and compensation for the Mundra power projects in Gujarat. However, NTPC tanked 11.5 percent, hitting 7.7-year low at Rs 116.95 intraday on CERC final regulations for FY15-19 provides no respite to the company. (5 reasons why it fell)
As per CERC order, Tata Power has been granted compensatory tariff of 52 paise per unit from the period beyond April 1, 2013. It has also been allowed compensation of Rs 329.45 crore for Mundra project.
CERC has allowed Adani Power gross compensatory tariff of 85 paise against Gujarat PPA and 36 paise against Haryana power purchase agreement (PPA). CERC granted nearly Rs 830 crore compensation for Adani Power's 4,620 MW Mundra plant.
Here is what brokerage advise:
Tata Power
CLSA Upgrade to BUY Target price: Rs 104 Rationale: Resolution of Mundra big relief for Tata PowerCERC order will significantly improve co’s cash flows, balance sheetUpgrade FY14-16 earnings by 59-112 percentAllot zero value to Mundra project now (vs minus Rs22/sh earlier)
Citi Upgrade to BUY Target price raised from Rs 81 to Rs 95Rationale:Post hike, stock would trade at cheap valuationsValuations seen at 10.3x P/E / 1.4x P/BV on FY15e with 51 percent EPS CAGRBack of the envelope calculations suggest FY14e recurring PAT of Rs 280 cr
Macquarie
Maintain OUTPERFORM Raise Target Price from Rs 98 to Rs 102Rationale: Retrospective compensation is a +ve surpriseGiven Mundra’s new tariff (< Rs 3 / unit) will be 1 of the cheapest (in the top 50 percent percentile) for most of the states, we believe there is high probability that SEBs will adhere to the order.Absence of further losses from Mundra and last two years of fuel under-recovery will further strengthen B/S and cash flows
Credit Suisse Maintain UNDERPERFORM Target Price: Rs 68Rationale: Compensatory tariff very psoitive. Translation into cash flow unlikely near termResolution of this issue would take timeIf implemented, EPS would increase by 132 percent / 124 percent for FY15/16
Adani Power
Macquarie Upgrade on NEUTRAL from UnderperformTarget Price: Increased from Rs 25 to Rs 37Rationale: Order is positive for AdaniWill improve cash flows, balance sheet significantlyRetrospective compensation is a positive surpriseIncrease FY15 / 16 PAT to Rs 400 cr / 1,040 cr from Rs 30 cr / 920 cr
IDFC Upgrade to OUTPERFORMER Increase target price by 44 percent to Rs 49Order addresses the biggest concern on Adani PowerAt 21x FY15e earnings, 1.5x P/BV – upgrade the stock See revised conso loss in FY14 to Rs 2,240 cr & conso profit to Rs 500 crore / Rs 630 crore in FY15 / FY16
Credit Suisse UNDERPERFORMTarget Price: Rs 17Rationale: Believe resolution of this issue would take timeState cabinets unlikely to grant approvals to SEBsJudgment lopsided towards developersIf implemented, & if Adani Power gets similar tariff hike for Tiroda and Kawai projects as well our earnings for FY15 would be negative by only Rs 300 cr (vs a loss of Rs 1,940 cr now) and turn to Rs 930 cr of profits for FY16 (vs Rs 1,130 cr loss now) NTPC
BarclaysOVERWEIGHTRationale: Estimate potential negative impact of 5-6 percent on consolidated earningsEstimated impact of Rs 720 crore on profitability (more than 6 percent of consolidated FY15e PAT)
IIFL ADD Target Price: Rs 170Rationale: Cut NTPC FY15 EPS by 11-12 to reflect the changes in regulationsCore RoE to collapse to 18 percent from FY15 onwards versus. 22 percent in FY14
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