For Tata Electric Companies (TEC), Indiaís largest private sector power supplier (generating capacity - 1,777 MW), the year 2000 has been full of action. First came the merger of the three companies, viz. Tata Power, Tata Hydro-Electric and Andhra Valley into a single entity. In a major transitional shift, the Tata group decided that TEC would be its vehicle for the foray into communications. From then on, it has made announcement after announcement, towards that end. Letís revisit TEC.
TEC holds a licence until 2014 to supply power to the Mumbai area. It is one of the most lucrative circles in the country. BSES and BEST are its biggest consumers, and combined consume two thirds of the power it produces.
With BSES entering the generation arena, its offtake from TEC got reduced. Added to that BSES, proposed to set up another 495 MW power plant at Palghar. On the other hand, even BEST is looking at generating its own power. These growing threats from BSES forced TEC to look beyond Maharashtra and possibly, at other related avenues for investment.
Towards this end, TEC has unveiled a whopping Rs 47 bn investment plan till 2003. Out of this about 80% is to be spent in the area of power generation (both licence as well as non licence areas). Another 8% or Rs 3.8 bn is slated to go into communications. The remainder will go into fuels, i.e. setting up a LNG terminal and jetty (proposed investment: Rs 5.5 bn).
To boost its power business, TEC had indicated that it is looking to acquire at least two IPP projects, either singly or jointly in Madhya Pradesh, Karnataka or Tamil Nadu. This plan of action is already taking shape. TEC recently hiked its stake to 50% in Mangalore Power Company (MPC), at a total value of about Rs 8.6 billion. It must be noted that MPC is setting up a 1000 MW thermal power plant at Mangalore. In another landmark deal, the company is also buying over Powergenís business in Gujarat at a consideration of Rs 20 bn. All this is likely to add an additional generated capacity of 2,600 MW to TECís existing capacity in the next three years.
Recognising the synergies that exist between power, telecom and broadband (Internet), the Tata Group is looking at communications in a big way. It has already got an Internet Service Provider (ISP) licence and is beefing up its broadband network in a big way. The LNG foray seems partly a backward integration exercise to control its fuel costs.
Bottomline, TEC looks set for a lot of action in the next few years. Going by the developments at TEC, the company is looking as aggressive as BSES, which is a positive.
The only thing that should hamper its growth is the slow moving power sector reforms. Also, a Reliance backed BSES should provide it solid competition. The telecommunications and the LNG foray are new businesses for the company. TEC has little experience in them. These businesses would therefore, require a longer gestation period to succeed. Added to this, the company is a late entrant in the ISP business, which is already very competitive.
Considering that TEC is looking to tap the power, telecom and Internet synergies, the company is headed in the right direction. As such, the valuations of the company look attractive in the long term. The Tata Power stock trades at Rs 74, thatís a P/E multiple of around 4 times its FY01 estimated earnings.