Tata Power is one of the largest integrated private power producer in the country will issue a total of nearly 33.22 crore shares with a face value of Rs 1 each at a price of Rs 60 per rights equity share.
The company has fixed an entitlement ratio of 7:50 which implies that an eligible equity shareholder will be entitled to apply for 7 rights equity shares for every 50 equity shares held as on the record date.
The equity infusion of Rs 2,000 crore would help the company to reduce its debt to equity ratio from expected fiscal end figure of 3.02 to 2.61 (post issue) if the rights issue is completely exercised by all the investors. Also company that had a gross debt of nearly Rs 40,178 crore as at end of Q3'FY14 would see its borrowing capacity improve a bit. But at the same time, there would be equity dilution of nearly 14% post the issue thereby impacting the earnings per share. The company's expected fiscal 2015 end diluted earnings per share that is likely to come in at Rs 6.41 may see negative impact of Rs 0.90 per share.
The rights issue is unlikely to weigh on the stock price much as the company received a major positive trigger last month end in the form of CERC order that granted company compensation of Rs. 330 crore for losses upto March 2013 due to higher imported fuel costs in 36 equal monthly installments. The CERC order also allowed the company to charge gross compansatory unit tariff of Rs 0.52 for fiscal 2014 in order to recover the differential fuel cost.
"We believe this order will significantly improve TPWRs cash flows and balance sheet. We maintain outperform with the target price raised from Rs 98 to Rs 102," wrote the analysts Inderjeet Singh Bhatia and Amit Sinha at Macquarie Capital Securities on February 24, 2014.
The power company intends to come out with the rights issue before the current month end and the issue will remain open for minimum of 15 days.