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For Tata Power and Adani Power, early resolution of compensatory tariff issue of their respective power projects at Mundra in Gujarat at the Appellate Tribunal for Electricity (APTEL) is important to further improve their balance sheets.
As far as Tata Power’s 4,000-Mw Mundra Ultra Mega Power Project (UMPP) is concerned, the company and analysts believe tariff hike remains the key variable for the stock. However, given the delay in APTEL proceedings and potential for a further appeal in the Supreme Court, the tariff increase might get further delayed.
The Supreme Court had stayed APTEL’s order to allow a compensatory tariff hike for Mundra UMPP. APTEL had allowed 36 paise per unit tariff hike for Mundra UMPP project to compensate these projects for the losses incurred due to a hike in Indonesian coal prices.
At the annual general meeting, responding to the concerns expressed by shareholders, Tata Power Chairman Cyrus Mistry hoped the compensatory tariff issue will be soon resolved. He said in the absence of compensatory tariff, the company continues to make losses at Mundra UMPP.
The loss at Mundra declined to Rs 84 crore in Q1 FY16 against Rs 305 crore year-on-year (y-o-y) and the Forex loss came in at Rs 52.9 crore against Rs 136.8 crore y-o-y.
ICICI Direct, in its report, said due to unforeseen changes in Indonesian law along with the tariff structure of the power purchase agreement (PPA), Coastal Gujarat Power Limited (CGPL) is not able to recover the full cost of fuel through its tariff for Mundra UMPP. “Any further delay in tariff realisation for the Mundra project will continue to significantly impact the feasibility of the project. Losses at Mundra have already eroded Rs 3,985 crore of the company’s net worth in the past three years. Furthermore, a delay in final verdict will negatively impact investor sentiments,” the report adds.
Further, JM Financial also observed that tariff hike remains the key variable for the Tata Power stock. “However, given delay in APTEL proceedings and potential for a further appeal to the Supreme Court, we find this trigger to be further delayed. We factor in only 50 per cent of the required tariff hike, defer the benefit to FY17 and revise coal price assumptions to $47/T (coal sales) and $52/T (Mundra cost).”
According to JM Financial, with depressed coal prices in the medium term and meagre Capex, Tata Power stock lacks triggers, barring UMPP tariff hike. The matter pending with the APTEL should see some movement as a fresh member was recently appointed to its board replacing retirements.
In case of Adani Power, high fuel cost is a big negative for its 4,620-Mw Mundra power project. According to IDFC Securities, tariff hikes for Mundra power project would address concerns over the company’s ability to service debt. The company has booked Rs 230 crore worth compensatory tariff granted by CERC for Mundra project.
The case is currently being heard at APTEL and the verdict is expected in a couple of months, notes IDFC Securities.
As far as Tata Power’s 4,000-Mw Mundra Ultra Mega Power Project (UMPP) is concerned, the company and analysts believe tariff hike remains the key variable for the stock. However, given the delay in APTEL proceedings and potential for a further appeal in the Supreme Court, the tariff increase might get further delayed.
The Supreme Court had stayed APTEL’s order to allow a compensatory tariff hike for Mundra UMPP. APTEL had allowed 36 paise per unit tariff hike for Mundra UMPP project to compensate these projects for the losses incurred due to a hike in Indonesian coal prices.
At the annual general meeting, responding to the concerns expressed by shareholders, Tata Power Chairman Cyrus Mistry hoped the compensatory tariff issue will be soon resolved. He said in the absence of compensatory tariff, the company continues to make losses at Mundra UMPP.
The loss at Mundra declined to Rs 84 crore in Q1 FY16 against Rs 305 crore year-on-year (y-o-y) and the Forex loss came in at Rs 52.9 crore against Rs 136.8 crore y-o-y.
ICICI Direct, in its report, said due to unforeseen changes in Indonesian law along with the tariff structure of the power purchase agreement (PPA), Coastal Gujarat Power Limited (CGPL) is not able to recover the full cost of fuel through its tariff for Mundra UMPP. “Any further delay in tariff realisation for the Mundra project will continue to significantly impact the feasibility of the project. Losses at Mundra have already eroded Rs 3,985 crore of the company’s net worth in the past three years. Furthermore, a delay in final verdict will negatively impact investor sentiments,” the report adds.
Further, JM Financial also observed that tariff hike remains the key variable for the Tata Power stock. “However, given delay in APTEL proceedings and potential for a further appeal to the Supreme Court, we find this trigger to be further delayed. We factor in only 50 per cent of the required tariff hike, defer the benefit to FY17 and revise coal price assumptions to $47/T (coal sales) and $52/T (Mundra cost).”
According to JM Financial, with depressed coal prices in the medium term and meagre Capex, Tata Power stock lacks triggers, barring UMPP tariff hike. The matter pending with the APTEL should see some movement as a fresh member was recently appointed to its board replacing retirements.
In case of Adani Power, high fuel cost is a big negative for its 4,620-Mw Mundra power project. According to IDFC Securities, tariff hikes for Mundra power project would address concerns over the company’s ability to service debt. The company has booked Rs 230 crore worth compensatory tariff granted by CERC for Mundra project.
The case is currently being heard at APTEL and the verdict is expected in a couple of months, notes IDFC Securities.
