Neutral on Tata Power - Fund Raising Update - Motilal Oswal

TATA POWER: KPC/Arutmin mines capacity to rise to 100m tons by 4QCY12; Hybrid fund raising of US$300-400m; Neutral

In its April 2011 update, Bumi Resources has stated that production capacity for KPC/Arutmin mines will increase to 100m tons by 4QCY12.

This would entail capex of US$1.1b & is expected to yield incremental EBIDTA of US$800m/year. The capex is intended to be funded through internal cash flows, vendor financing and BOOT financing.

During CY10, production of KPC / Arutmin mines stood at 61m tons. and we expect the same to increase to 77m tons in CY12 and 98m tons in CY14.

Additionally, total coal resource for KPC/Arutmin mines has been upgraded to 11.2b tons. Of this, the proven reserves stand at 1.89b tons now.

Tata Power has announced fund raising of US$300-400m of hybrid debt which would be carried out by a wholly owned subsidiary of the company, Bhira Investment on the guarantee of Tata Power. This is first of its kind fund raising in India. We understand that the debt has maturity of 60 years and is non-callable for the first 5 years.

We expect TPWR to report consolidated PAT of Rs18.8b for FY11 (up 22% YoY), Rs27.5b in FY12E (up 46% YoY) and Rs24.5b in FY13 (down 11% YoY). We arrive at an SOTP based target price of Rs1,290/sh. At CMP of Rs1,304/sh, the stock trades at P/E of 17x FY11E, 11.7x FY12E and 13.2x FY13E. Maintain Neutral.

Source : Equity Bulls

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