Maintain ‘neutral’ on Tata Power with an SoTP target price of R92 a share. The stock is trading at 1.6x FY16e P/BV with an ROE of ~10% in FY15.
Its performance is likely to remain under pressure until clarity emerges on legal issues. Meanwhile, we believe the company has no significant growth prospects over the next few years.
Tata Power’s Q3FY15 adjusted numbers were much below expectations on account of lower coal profitability. Forex gains in the coal business boosted the reported numbers.
Adjusted Ebit losses in coal the business were R200 crore on account of lower coal realisation. Q3FY15 Bumi sales volumes were 20.8 million tonne and production 19.4 million tonne.
Coal realisation (net of royalty) was $45 per tonne and cost of production $34 per tonne. The government of Indonesia clarified that the VAT recoverable can be offset against the royalty payment and the currency exchange rate should be the rate in which billing was done.
This led to a forex gain of R410 crore in the coal business. The Arutmin mine sale process has been delayed on account of lower coal prices, leading to longer due diligence by the lenders.
The next date of the APTEL hearing is February 11 and APTEL has agreed to expedite the case after that. Mundra UMPP had a loss of R240 crore in Q3 and the compensatory tariff based on the CERC formula is R210 crore. CERC recently approved the tariff petition for the Maithon power plant which led to higher profitability. Q3FY15 adjusted PAT for Maithon was R38 crore versus R28 crore in Q2FY15.