Tata Power: Positives priced in

Buoyant coal prices and commissioning of key projects in 2011-12 have already been factored in.

Tata Power’s performance in the September quarter was not disappointing, although it could have been better if there were no one-off elements like a decline of 11 per cent in coal sales (13.7 million tonnes) and 22.6 per cent rise in coal production costs.

Consolidated revenues rose five per cent year-on-year (y-o-y) to Rs 4,809.5 crore, largely supported by a lower base, wherein sales declined 1.2 per cent. A 27.6 per cent rise in coal realisation to $74/tonne also boosted revenues from the segment by seven per cent to Rs 1,475 crore (33 per cent of total sales).

The power business, which contributes 67 per cent to total revenues, witnessed a marginal decline of 6.5 per cent at Rs 2,993 crore on account of pass-through effect of lower fuel costs, flat sales volumes and a 29 per cent fall in merchant rates (Rs 3.9/kwh). However, power subsidiaries, including transmission and trading, reported nine per cent growth in sales at Rs 1,678 crore.

A 722-basis-point drop in fuel costs helped operating profit rise 22 per cent to Rs 1,137.5 crore. Net profit increased 83 per cent to Rs 672.5 crore. But, adjusted for extraordinary items like profit on sale of non-core investments, assets by subsidiary (Nelco) and forex gain, net profit rose just 12 per cent to Rs 350 crore.

Analysts expect buoyancy in consolidated financials, especially in the December quarter, mainly due to a low base and robust outlook for coal prices. The company is confident of producing 60 million tonnes of coal from Bumi in the calendar year 2010. The next financial year (2011-12) is expected to be better due to the commissioning of first unit of the company’s key projects — Mundra (4,000 Mw, 65 per cent complete) and Maithon (1,050 Mw, 90 per cent complete) — which will more than double its existing capacity of 3,000 Mw.

However, all these positives seem to be factored in the current stock price (Rs 1,344), reckon analysts.