At Rs 15.9 billion (+8% y-o-y), Tata Power’s (TPWR’s) Ebitda was marginally below our/consensus forecast. Excluding the contribution from share of JVs/Associates less minority interest, TPWR posted Rs 79 mn loss (vs. our forecast of Rs 200 mn profit). However, share of JVs/Associates at Rs 4.3 bn (+9% q-o-q, 117% y-o-y) exceeded our forecast by 20%, leading to a NPAT of Rs 3.8 bn (+16% y-o-y), which was 19% above our forecast, but 13% below consensus. 18% q-o-q rise in coal business earnings drove NPAT beat. Mundra did well (Rs 1.1 bn Ebitda vs. Rs 0.9 bn loss in Q1FY18) as fuel cost was reined in. We normalise Q2FY18 reported earnings for Rs 356 mn impairment towards the carrying value of the Rithala gas-fired plant, and Rs 1.1 bn fair value adjustment (loss) in respect of carrying value of holdings in Tata Teleservices (TTSL, Not listed). Reported PAT at Rs 2.3 bn (+3% q-o-q, -45% y-o-y) was 27/46% below our/consensus forecasts.
Key positives were stand-alone earnings (opex control), contribution from Mundra (fuel cost reined in), and contribution from Indonesian coal assets (widening spreads). Relative to our forecasts, earnings from stand-alone business, Mundra and Indonesian coal assets surprised us. On the other hand, earnings from Delhi Distribution (TPDDL) and TPWR Solar came as a disappointment. Balance sheet: At Rs 475 bn, consolidated net debt was unchanged q-o-q, net D/E stood at 2.9x (vs. 3.1x as of Jun-2017). Notably, in addition to its holding in PT Arutmin (not listed), TPWR has now classified its holdings in Tata Communications (TCOM IN, not rated), Panatone Finvest (not listed) and PT Mitaram Prekasa (not listed) as “assets held for sale”, potentially signalling some visibility on monetisation of non-core investments/assets.
What next? We are reviewing our forecasts, maintain Buy Earnings outlook remains sanguine; monetisation of non-core assets/investments and steps to reduce losses at Mundra hold key. Maintain Buy; at CMP, the stock trades at FY19F P/E of 12.4x (EPS = Rs 6.8) and P/B of 1.3x (BVPS = Rs 67.8).