Tata Power: All charged up

The sales of an 8 per cent of its stake in Tata Teleservices, by Tata Power for Rs 317 crore has probably made up for the disappointment of Tata Sons choosing not to convert its preferential warrants. Of course, given the funding gap for projects, the Street is anticipating that Tata Power will reduce its stake in some of the project SPVs or even dilute equity in the parent company.

The company needs an estimated Rs 5,000 crore as contribution towards equity for various projects and more than half of this is expected to be generated from internal accruals. Besides, more of its investments can be sold which is not a bad idea because otherwise these are not always fully valued. As for the loans taken to buy a 30 per cent stake in two Bumi coal mines, Arutmin and KPC, perhaps too much is being made of falling coal prices.

Tata Power should manage to repay the loans more or less as scheduled, even at prices of $45 per tonne , though it may need to postpone some expenditure. Coal prices are currently ruling at around $60-65 a tonne. Outstanding loans for Bumi are expected to come down to $775 million by March 2009 from $850 million currently.

The stock is a good play on the power shortage in the country because the firm is expanding capacity to 11,000 MW in the next four years and most of the debt for the projects, of around Rs 18,000 crore, has been tied up.