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TEC: Getting its act together

Sep 27, 2000

Tata Electric Companies (TEC) plans to hike its stake by 20 percent in Mangalore Power Company (MPC) to 50 percent, at a total value of about Rs 8.6 billion (US$ 187 million). MPC is setting up a 1000 MW thermal power plant at Mangalore. This sort of acquisition news would have sent the stock price of any other leading company, in any other sector (especially TMT), soaring. But the markets had no reaction to the news. The acquisition will go a long way in giving TEC a national presence. TEC has been predominantly present in Mumbai, Maharashtra. Only in the recent years has it shown an inclination to spread its wings into states like Orissa and southern India. It is planning to acquire at least two of four IPP projects, either singly or jointly in Madhya Pradesh, Karnataka or Tamil Nadu. The projects have capacities of around 500 MW each and were owned by international companies, who are looking to exit.

TEC has been undergoing a lot of transition lately. The Tataís recently decided to merge the three entities viz. Tata Power, Tata Hydro and Andhra Valley as one. Mr. Adi Engineer was recently appointed the managing director, a position that was vacant for quite some time. The Tataís are also looking at raising their stake in TEC to over 26%. All these developments underline the Tata Groupís commitment to this company and its focus on the power sector.

TEC has also indicated the possibility of leveraging its power distribution network to venture into telecommunications. Mr. Ratan Tata has also said TEC will spearhead the groupís e-commerce foray. At an analyst meet a few months back, the management had unveiled a whopping Rs 47 bn investment plan till 2003. Projects worth Rs 28.3 billion are already under execution.

Out of this, about 8% or Rs 3.8 bn is slated to go into communications. The company is also looking at setting up a LNG terminal and jetty (proposed investment: Rs 5.5 bn). This LNG investment should bring down its fuel costs.

TEC is slated for a lot of action in the next few years. The only thing that should hamper its growth is the slow moving power sector reforms or its own lack of inertia (for which it has been known). Also, a Reliance backed BSES should provide it solid competition.

At the current price level of Rs 71 the Tata Power stock trades at a P/e multiple of 3.5 times its FY00 earnings. If its forays in communications and IPPs taste success, the stock could see an upward re-rating in the coming months.

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