Maintain Neutral on Tata Power - Motilal Oswal

TATA POWER 3QFY11: In-line; Heavy monsoons impacts performance of coal mining SPVs; Maintain Neutral

Tata Power reported 3QFY11 standalone revenues of Rs16.5b (up 5% YoY), EBITDA of Rs3.3b (down 9% YoY), and PAT of Rs1.5b.

Consolidated revenues stood at Rs44b (down 7% YoY) and PAT at Rs4.4b (up 13% YoY). Reported profit includes Rs321m forex gain.

We expect TPWR to report consolidated net profit of Rs19.2b for FY11 (up 30% YoY), Rs23.7b in FY12E (up 23% YoY) and Rs21.6b (down by 9%) in FY13.

We arrive at SOTP based target price of Rs1,243/share. At CMP of Rs1,241, the stock trades at P/E of 13x FY11E and 14x FY12E.

Over the past 1 year, RB Index has moved up sharply from US$70-80/ton to US$120/ton now. Japanese utilities annual contract negotiations (April-March supplies) have commenced and could probably be finalized in March/April. A US$10/ton higher realization vs expectation will lead to incremental earnings of Rs5b for Tata Power, earnings upgrade of ~19%. Although our rating remains Neutral, the above coal price renegotiation offers a trading opportunity.

Source : Equity Bulls

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