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Tata Power: Coal business disappoints this quarter - Views on News from Equitymaster
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  • Aug 21, 2014 - Tata Power: Coal business disappoints this quarter

Tata Power: Coal business disappoints this quarter
Aug 21, 2014

Tata Power declared its results for the quarter ended June 2014. The company's standalone revenues and profits fell by 11% and 29% YoY during the quarter. Here is our analysis of the results.

Performance summary
  • Standalone revenues decline by 11% YoY during 1QFY15. Sales volumes fall by 9% YoY.
  • Operating profits fall by 26% YoY during the quarter, while profits decline of by 29% YoY.
  • Company's consolidated revenues decline by 6% YoY while net loss stands at Rs 1.1 bn, a figure similar to last year.

Consolidated Financial Snapshot
(Rs m) 1QFY14 1QFY15 Change
Generation 3,897 3,301 -15.3%
Sales 4,136 3,778 -8.7%
Net revenue 26,075 23,285 -10.7%
Expenditure 18,646 17,800 -4.5%
Operating profit (EBDITA) 7,429 5,485 -26.2%
EBDITA margin (%) 28.5% 23.6%  
Other income 2,456 2,645 7.7%
Depreciation 1,360 1,416 4.1%
Interest 2,363 2,521 6.7%
Gain/ (Loss) on exchange (657)  (432)  
Profit before tax 5,505 3,761 -31.7%
Tax 1,926 1,201 -37.6%
Effective tax rate 35% 32%  
Profit after tax/(loss) 3,579 2,560 -28.5%
Net profit margin (%) 13.7% 11.0%  
No. of shares (m) 2,373.1 2,704.6  
Diluted earnings per share (Rs)*   4.0  
Price to earnings ratio (x)   22.8  
*On a trailing 12-month basis

What has driven performance in 1QFY15?
  • Tata Power's consolidated revenues came in lower largely due to a 12% YoY decline in its coal business' revenues, where realizations have been on the decline. In addition, the lower fuel costs also impacted select business segments, given that costs as passed through.

  • In terms of segments, EBIT margins of the company's consolidated power business came in at 14.7%, same as the corresponding period last year.

  • The coal businesses margins fell to 12.2% as compared to 15.1% on the back of lower realizations. It may be noted that the company sold higher volumes in the quarter gone by. The coal business contributes to about one fourth of the consolidated revenues and about a fifth of the pre-tax profits.
What to expect?
At the current price of Rs 92, the stock is trading at a multiple of about 2.3 times its FY14 book value per share.

As per the company's management, it has not yet taken into account the compensatory tariffs from procurers, despite receiving favourable outcome from the APTEL; it would only be doing so once it receives the payments, however considering that this order has been challenged by some of the procurers, resolution of this matter will take some time it seems. Nevertheless, had the company included the amount, consolidated profits would have been higher by Rs 2.25 bn.

However, CGPL's (Mundra UMPP's parent company) reported a loss of a little over Rs 3 bn in the quarter gone by. This indicates that the company would still continue to make losses despite the compensatory tariff. However, this is expected to change as the company would bump up on its operating parameters - PAF, PLF, heat rate amongst others - which would allow it to earn the bare minimum incentives as well as recover its fixed costs.

In addition, the company is also making efforts to reduce the debt on its books. It current has debt worth Rs 350 bn on its books, with Rs 50 bn due to repayment in current year. The sale of coal assets as well as the recently concluded FPO should help fund the same.

We had recommended investors to Sell the stock in July 2014. We would like to maintain this view till there is more clarity on the uncertain developments.

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

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