Small BusinessTata Power: All charged up
With Tata Power now in a position to sell 100 MW of power from its Trombay unit as merchant sales, the company’s earnings for the current year should get a slight boost. In the current year, the higher generation—estimated to be higher by 10-15 per cent — is what will push up revenues rather than any significant increase in power realisations.
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From Rs 7,071.5 crore last year, stand-alone revenues are expected to increase by about 10 per cent this year. Consolidated revenues showed much higher growth of 60 per cent last year mainly because the company’s coal mines fared better with coal prices ruling high.
Tata Power may have added just 420 MW of capacity last year but it plans to increase capacity five-fold from 2785 MW currently to 13,000 MW by 2014. The first phase of the Mundra UMPP of 800 MW will be commissioned in September 2011 with about a fourth of the work having been completed.
Apart from a gap of around Rs 3,000 crore, which is the equity contribution to be made over three years, the company has tied up loans amounting to Rs 12,000 crore. Meanwhile, with coal prices bottoming out, concerns over realisations from the Bumi coal mines, in which Tata Power holds a 30 per cent stake, should ease. The mines are currently profitable with coal prices at around $60 per tonne and an average selling price of $50 per tonne over the longer term should be good enough to ensure that Tata Power repays the loans that it took to acquire the mines.
The Street has been concerned about the repayment of the loans amounting to around $750 million. However, these concerns seem exaggerated because a fairly large portion is due only in 2014-15, by which time the Mundra plant should be generating cash flows.
Tata Power is a great play on India’s chronic power shortage though at the current price of Rs 1,140, the stock trades close to it sum-of the- parts-valuation price of Rs 1,200.