Tata Power: Forex loss, coal segment drag Q1

Takes a conservative stand, doesn't book compensatory tariff gains of Rs 225 crore

Tata Power's June quarter numbers disappointed the Street on Tuesday as the company reported a loss against expectations of a profit. The company's consolidated loss of Rs 111.3 crore against a reported loss of Rs 114.7 crore in the year ago period, claim analysts, is below the estimated Rs 230-crore profit because the company has booked lower profit from its coal business. Coal prices have collapsed in the last few months, which has impacted the company's consolidated profit. Emkay Global says the company has missed expectation on lower-than-expected profit from coal business, higher interest cost and a lower profit from standalone business.

While the company's standalone business has reported a profit of Rs 260 crore, analysts claim the directional view on the company is negative as the variation is too sharp in its quarterly performance. For instance, the standalone business reported a profit of Rs 410 crore a year ago and Rs 120 crore in the previous quarter. The impact on the company's quarterly profit was accentuated by the Rs 140-crore foreign exchange loss reported during the quarter and some adjustments made towards diminution in value of investments. Even operationally, the company has missed the Street's estimates. There is a Rs 100-crore hit in the Ebit of the coal business on lower realisations. The coal business earnings before interest and tax came in at Rs 260 crore against the Rs 360 crore reported in the corresponding quarter of the previous year. In the March quarter, the coal Ebit stood at Rs 480 crore.

Operationally, the company has also seen poor performance in its Mython project as the change in regulatory norms of the CERC has impacted the incentives.

In addition, the company has not accounted for the compensatory tariff increase in its Mundra UMPP, which has impacted the bottom-line  by another Rs 225 crore. The company, claim analysts, is following a very conservative accounting policy which is why it is not booking the gains.

On the other hand, Adani Power has started booking the compensatory tariff increase in their financials but Tata Power has not.   Analysts are uncomfortable with the sharp quarterly variation in the company's performance. The stock is also trading at premium valuations given the challenges it faces across businesses.