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| Tata Power: Cost side story |
| Shobhana Subramanian / Mumbai Nov 12, 2009, 00:41 IST |
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The firm has sold more power but interest and depreciation costs have depressed the bottom line.
 With new units being commissioned at Trombay, Haldia and Jojobera over the past few months, Tata Power was able to generate 17 per cent more power during the September 2009 quarter and sell 16.5 per cent more compared with the corresponding period last year.
However, since fuel costs, especially those of imported coal, have fallen 33 per cent over the past year, realisations have come off 25 per cent to Rs 4.28 per unit. Fuel costs are a pass through item for power utilities.
Realisations have dropped even though the company was able to sell more merchant power at higher-than-average tariffs of Rs 5.50-6 per unit. With the power business bringing in lower revenues, total revenues for Tata Power during the quarter dipped by just under 15 per cent to Rs 1,670 crore.
However, the operating profit was up 37.6 per cent, though a higher depreciation, interest and tax rate depressed the net profit before exceptional items, down 4 per cent at Rs 180 crore. That’s despite the company making Rs 120 crore on other income.
Having raised Rs 1,650 crore through GDRs recently, Tata Power has deleveraged the balance sheet and now has the required funding needed to fund its projects over the next three years. The company’s 4,000 MW Mundra UMPP is on track with the first 800 MW unit scheduled to be commissioned in September 2011, while the 1,050 MW joint venture Maithon power project should be up and running by the third quarter of 2010-11.
The company plans to increase generation capacity five-fold from 2,785 MW to 13,000 MW by 2014. Analysts have been concerned that the low prices of coal would hurt business from the Bumi coal mines, in which Tata Power holds 30 per cent stake.
However, coal prices seem to have stabilised and the mines should be profitable allowing Tata Power to repay the $750 million that it had borrowed to buy the stakes in the mines. Most of the payments are scheduled for 2014-15, by then the Mundra plant should be generating cash flows.
Analysts attribute a sum-of-the parts valuation to the stock of Rs 1,400 a share which, apart from the power generating business, includes cash and investments and the value of the coal mines.
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