Mundra power tariff revision a boost to Tata, Adani outlook

By: |
New Delhi | Published: November 14, 2018 2:40:47 AM

The Supreme Court allowing the Central Electricity Regulatory Commission (CERC) to revise power tariffs for imported-coal based power plants in Mundra is seen to improve the outlook on Tata Power and Adani Power.

Edelweiss Securities said that the tariff hike for Adani Power “could boost earnings before interest, taxes, depreciation and amortisation (Ebitda) by about Rs 1,600 crore at 70% PLF level”.

The Supreme Court allowing the Central Electricity Regulatory Commission (CERC) to revise power tariffs for imported-coal based power plants in Mundra is seen to improve the outlook on Tata Power and Adani Power.

The two companies, grappling with under-recoveries from these power plants, can now see light at the end of the tunnel as the electricity regulator would now take cognisance of the recommendations of the high-level committee, constituted to assess if the plants could be revived through appropriate financial and contractual re-structuring.

Coastal Gujarat Power (CGPL), the Tata Power arm that runs the 4,150 MW Mundra ultra mega power plant, has fuel under-recovery of Rs 0.83/unit, while under-recovery in Adani’s 4,620 MW Mundra plant averaged Rs 1/unit in Q2FY19. Till March 31, 2018, Adani Power and Tata Power had suffered financial losses to the tune of Rs 9,748 crore and Rs 8,176 crore, respectively, from under-recoveries of fuel prices.
Analysts have noted that if CERC approves the high-level committee recommendations, CGPL tariffs would increase by Rs 0.30-0.40/unit and Adani’s tariff would rise by Rs 0.80/unit.

Edelweiss Securities said that the tariff hike for Adani Power “could boost earnings before interest, taxes, depreciation and amortisation (Ebitda) by about Rs 1,600 crore at 70% PLF level”. Adani Mundra’s revenue at Q2, FY19-end was Rs 50 crore. Edelweiss Securities has assigned negative Rs 2/share for Adani Power’s Mundra units in its ‘sum-of-the-parts’ (SOTP)-based valuation of Rs 25. Axis Capital, which has assigned negative Rs 43/share for Mundra for Tata Power’s SOTP-based valuation of `90, said that the tariff revision “would re-rate valuations”.

CGPL entered into power purchase agreements (PPA) with Gujarat, Punjab, Maharashtra, Haryana, and Rajasthan in 2007 at a levelised tariff of Rs 2.26/unit. Adani Power had signed two PPAs with Gujarat (1,000 MW each) in 2007 at Rs 2.89/unit and Rs 2.35/unit, and one PPA with Haryana (1,424 MW) in 2008 at Rs 2.94/unit. Gujarat’s average power purchase price is Rs 3.49/unit.

The high-level committee had recommended reduction in fixed charge by Rs 0.20/unit, necessitating banks to reduce debts by Rs 4,240 crore for Tata and Rs 3,821 crore for Adani. The committee also suggested to allow pass through of coal costs, capped at $120/tonne.

Additionally, it also recommended to extend the existing PPAs by another 10 years after the completion of the 25-year tenure.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Next Stories
1New twist in Essar Steel IBC case! This operational creditor wants Ruias’ offer over ArcelorMittal; here’s why
2Binny Bansal resigns as Flipkart Group CEO after sexual misconduct claim: Report
3OnePlus 7 won’t be company’s first 5G smartphone, company said to launch separate 5G phone