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Tata Power: Lower volumes hurt growth
Feb 11, 2014 | Updated on Feb 12, 2014

Tata Power declared its results for the quarter ended September 2013. The company's standalone revenues declined by 21% YoY, while profits grew by 16% YoY during the quarter. Here is our analysis of the results.

Performance summary
  • Standalone revenues fall by 21% YoY during 3QFY14 on the back of an 11% YoY decline in volumes sold. Lower volumes were on account of lower generation at company's Trombay plant (due to non-availability of gas), coupled with back down and shut down of certain units.
  • Operating profits rise by 25% YoY as margins expand by 13% YoY to 35.4% during the quarter. The same is largely due to lower fuel costs (as a percentage of sales).
  • Despite lower other income, higher depreciation and interest costs and higher forex losses the entity saw 16% YoY rise in profits.
  • Consolidated revenues decline by 4%, while losses came in Rs 749 m as compared to Rs 3.3 bn in 3QFY13. Revenue decline was led by company's standalone operations followed by lower revenues from other businesses including its coal subsidiaries.

Standalone financial performance
(Rs m) 3QFY13 3QFY14 Change 9mFY13 9mFY14  
Generation 3,873 3,212 -17.1% 12,404 10,513 -15.2%
Sales 3,998 3,547 -11.3% 12,460 11,445 -8.1%
Net revenue 25,491 20,079 -21.2% 73,530 68,150 -7.3%
Expenditure 19,791 12,962 -34.5% 58,765 47,579 -19.0%
Operating profit (EBDITA) 5,701 7,118 24.9% 14,765 20,570 39.3%
EBDITA margin (%) 22.4% 35.4%   20.1% 30.2%  
Other income 739 553 -25.2% 5,718 4,308 -24.7%
Depreciation 1,281 1,484 15.8% 4,385 4,240 -3.3%
Interest 1,804 2,143 18.8% 4,859 6,135 26.3%
Gain/ (Loss) on exchange (421) (646) 53.6% 19 (2,139)  
Profit before tax 2,934 3,397 15.8% 11,258 12,363 9.8%
Tax 770 886 15.1% 3,011 3,664 21.7%
Effective tax rate 26% 26%   27% 30%  
Profit after tax/(loss) 2,164 2,511 16.1% 8,247 8,699 5.5%
Net profit margin (%) 8.5% 12.5%   11.2% 12.8%  
No. of shares (m)         2,373.1  
Diluted earnings per share (Rs)*         5.5  
Price to earnings ratio (x)         14.3  
*On a trailing 12-month basis

What has driven performance in 3QFY14?
  • Tata Power's standalone generation and sales volumes declined by 17% YoY and 11% YoY respectively during the quarter. Generation volumes in Mumbai were down by 20% YoY on the back of non-availability of gas and back down of a unit due to higher cost of oil. As for the outside Mumbai operations, generation volumes were lower due to lower demand by Tata Steel, an outage at a unit of the Jojobera plant, and a shutdown of the Belgaum plant (due to end of PPA). Company's revenues were down by about 21% YoY on the back of lower fuel costs (which were passed on in the form of lower tariffs), coupled with plant shut downs. The company's operating profits increased sharply on the back of higher margins. The same were due to lower cost of power purchased, as well as lower use of relatively expensive fuels (gas and oil). Standalone profits came in higher by 16% YoY.

  • Tata Power's consolidated revenues declined by 4% YoY on the back of a decline in standalone business coupled with lower revenues from the other businesses including the coal subsidiaries (lower by Rs 1.4 bn), Trust Energy (Rs 1.7 bn, on the back of lower income from shipping business), and lower revenues from its power distribution business in Delhi. However, the company's Mundra plant offset the lower revenues as all five units were operational during the quarter gone by as compared to only three in the corresponding quarter last year. At the net level, the company reported a loss of Rs 749 m as compared to a loss of Rs 3.3 bn during corresponding quarter last year. Profits were impacted by higher forex losses, higher interest costs and poor performance of the company's coal business segment.

  • In terms of segmental performance, EBIT margins of the company's consolidated power business came in at 17.5% during the quarter as compared to 13.2% last year. Revenues from this business declined by 7% YoY and contributed to about 70% of revenues (72% last year). As for the coal business, revenues increased by 4% YoY and EBIT margins came in at a low 0.7% as compared to 17.9% last year. The latter's performance was impacted by lower coal prices. It may be noted that the above mentioned numbers are not adjusted for intersegment items.
What to expect?
At the current price of Rs 76, the stock is trading at a multiple of about 1.5 times its FY13 book value per share.

The stock of Tata Power has been quite volatile in the recent past. The key area of concern remains the delays in approval of tariffs. Further, the company hived off its stake in PT Atrumin coal mines for a sum of US$ 500 m. This it has done so to support CGPL's - the company running the Mundra plant - cash flows. This is however not expected to impact the fuel supplies to the UMPP as it has retained its stake in the other mining and marketing subsidiary - Kaltim Prima Coal.

Since we are still awaiting the finalisation of the compensatory tariff for the company's Mundra UMPP project, we recommend investors to 'hold on' to their current positions in the stock.

We would like to remind our subscribers that for the purpose of risk minimisation, one should avoid having more than 5% exposure to any one stock from the overall equity portfolio. Please do visit our asset allocation section for further details.

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