13 February 2012
3QFY12 Results Update | Sector: Utilities
Tata Power
BSE SENSEX
S&P CNX
17,749
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1,6,12 Rel. Perf. (%)
M.Cap. (INR b)
M.Cap. (USD b)
5,382
TPWR IN
2,373.3
135/81
10/-5/-10
263.9
5.3
CMP: INR111
TP: INR92
Neutral
* Consolidated incl share of profit from KPC and Arutmin mines, Pre Exceptionals, Fully Diluted
Standalone PAT lower than expected led by no dividend income:
Tata Power (TPWR) posted standalone PAT of
INR4.6b for 3QFY12. This includes INR2.7b of forex gain, adjusted for which PAT was INR1.8b. Our estimate of
INR3.1b factored in dividend income of INR2b (booked in both 1QFY12 and 2QFY12 from mining HOLDCO),
which was not booked in 3QFY12.
Consolidated adjusted PAT in line with estimate:
Reported consolidated PAT of INR2.9b includes forex gain of
INR3.8b, deferred stripping cost write-off of INR6.9b and impairment of INR1.6b at Mundra UMPP SPV. Adjusted
for these, consolidated PAT was INR5.5b, largely in line with our estimate of INR4.8b. The deferred stripping
cost write-off pertains to change in stripping ratio owing to geological surprises, which impacted the
contribution from mining companies.
Robust core profit of coal SPVs negated by write-off:
Coal production at Bumi stood at 18.6m tons (v/s 17.5m
tons in 3QFY11) and realization was USD95/ton (v/s USD75/ton in 3QFY11). Production cash cost increased 10%
YoY to USD41/ton, leaving gross contribution at USD54/ton, up from USD49/ton in 2QFY12 and USD36/ton in
3QFY11. However, EBIT from coal SPVs was just INR1.4b as against INR4.3b in 3QFY11 and INR6b in 2QFY12. In
3QFY12, a charge of INR6.94b in the KPC mines due to change in strip ratio following geological surprises
negated the contribution from mining companies.
Marginally upgrading estimates; maintain Neutral:
We expect TPWR to report consolidated net profit of
INR19.8b for FY12 (up 13% YoY; v/s INR18.8b earlier), and INR20.2b in FY13E (up 2% YoY; v/s INR18.9b earlier).
The stock trades at 13x FY13E EPS. Maintain
Neutral
with a target price of INR92.
Nalin Bhatt
(NalinBhatt@MotilalOswal.com) +91 22 3982 5429
Satyam Agarwal
(AgarwalS@MotilalOswal.com) /
Vishal Periwal
(Vishal.Periwal@MotilalOswal.com)

Tata Power
3QFY12 standalone PAT lower than estimates led by no dividend income:
Tata Power reported 3QFY12 standalone revenues of INR22.5b (up 36% YoY), EBITDA
of INR4.8b (down 43% YoY), and PAT of INR4.6b. Reported PAT is boosted by forex
gain of INR2.7b. arising out of change in accounting policy by adopting AS-11,
leading to reversal of forex losses booked in 1HFY12. AS-11 adoption would mean
that losses in carrying value of Assets/LT liabilities (FCCB and Euro Bonds) would
now be adjusted to useful life/debt repayment schedule, as the case may be.
Adjusted for the same, the PAT stood at INR1.84b, lower than our estimate of
INR3.1b. Deviation is largely on account of lower other income as we had assumed
company to repatriate dividend from mining HOLDCO to standalone entity of
INR2b. In 1Q and 2QFY12 numbers, TPWR had income of INR2b each on this account.
Given that TPWR had given in-principal approval to lenders to transfer 75% of
Holding in mining company to Mundra UMPP SPV to support losses, we had assumed
continued dividend income. This is however postponed as the actual transfer is
likely to be decided by end FY12.
Merchant sales for the quarter stood at 218MUs only out of Haldia, as Unit-8
Trombay (100MW) is shifted on regulated mechanism. Realisations for Haldia stood
at INR3.37/unit vs INR2.35/unit YoY.
Consolidated adjusted PAT in-line with estimates:
For 3QFY12, TPWR reported consolidated profit of INR3b. The reported numbers
however includes several adjustments, Viz. 1) INR6.5b of deferred stripping cost
write-off, 2) Forex gain of INR3.9b (adoption AS-11, as explained above) and 3)
INR1.62b impairment loss owing to AS-11 in Mundra UMPP SPV. Adjusted for this,
the consolidated net profit works out to INR5.5b, largely in-line with our estimate
at INR4.8b.
Also, the consolidated PAT was partly driven by US$88m of dividend income booked
by TPWR in mining HOLDCO, received from KPC/Arutmin mines. We understand
that TPWR has paid ~10% withholding tax towards the same in Indonesia.
13 February 2012
2

Tata Power
Robust core profit of coal SPVs, negated by write-off
During 3QFY12, Tata Power's share of revenues from coal mining companies (KPC/
Arutmin) stood at INR27b (up 61% YoY). Coal production stood at 18.67m tons (vs
17.5m tons), and realizations at USD95/ton (vs US$75/ton YoY). Sales volume for
the quarter stood at 17.5m tons, vs 16m ton YoY.
Production cash cost increased 10% YoY to USD41/ton, leaving gross contribution
at USD54/ton, up from USD49/ton in 2QFY12 and USD36/ton YoY.
However, EBIT from Coal SPVs in 3QFY12 stood at mere INR1.4b, vs INR4.3b YoY
and INR6b QoQ. This is owing to a charge of INR6.94b in the KPC mines owing to
change in strip ratio owing to geological surprises, negating the contribution from
the mining companies.
Operational / financial performance of mining companies
3QFY12
Operational Details
Production (m tons)
Sales (m tons)
Realisation (USD/ton)
Cash cost of production (USD/ton)
Financial Details
Revenues (INR m)
EBIT (INR m)
18.7
17.5
95.0
40.9
27,007
1,353
3QFY11
17.5
16.0
75.0
37.0
16,723
4,326
Chg (%)
6.7
9.5
26.7
10.4
61.5
-68.7
2QFY12
17.0
16.0
95.0
46.0
1QFY12
15.5
15.3
94.1
40.6
21,673
19,907
5,962
7,501
Source: Company/MOSL
Subsidiary/Associate companies performance
North Delhi Power (51% stake) reported 3QFY12 net profit of INR304m, marginally
lower compared to INR348m, possibly owing to certain under recoveries. DERC
has now allowed Fuel Adjustment Charge and management indicated that there
are no major under recoveries (just breaking even)
Powerlinks Transmission (51% stake) reported PAT of INR208m, flat YoY, while
Tata Power Trading Company (100% stake) reported PAT of INR40m in 3QFY12, vs
INR6m YoY on the back of robust volume growth.
Financials of subsidiaries/associate companies (INR m)
3QFY12
North Delhi Power
Revenues
Net Profit
Powerlinks Transmission
Revenues
Net Profit
Tata Power Trading
Revenues
Net Profit
10,614
304
701
280
4,898
40
3QFY11
7,885
348
735
280
2,536
6
Chg (%)
34.6
-12.6
-4.6
0.0
93.1
566.7
2QFY12
17,274
861
723
296
1QFY12
12,057
1483
696
256
3,942
6,621
33
58
Source: Company/MOSL
13 February 2012
3

Tata Power
Status Update on the projects under construction
Mundra UMPP:
Tata Power is in final leg of commissioning Unit-I and has
completed steam blowout for Unit-II while synchronization is expected soon.
Entire BoP for the plant is ready and Unit III to V is expected to commission with
gap of 4 months.
Maithon project:
Company has commissioned Unit-I and has completed steam
blowout for Unit-II, Unit-II synchronization is expected in 4Q and
commercialization expected in 1QFY13. Management shared construction of
sidings for Unit-II is as per schedule and land acquisition for the work is bit delayed.
Dagchu HEP:
Management shared tunneling work is bit delayed and only 5.3kms
of tunneling is now completed. Project CoD is targeted by CY14.
Naraj Marthapur project:
Tata Power is planning to convert the projects into gas
based project, as the project is in proximity to KG-D6 gas block. It has received
approval from the State government for the same. In order to harness the
mandakini coal block, Company is looking for new project site. Mandakini mine
land acquisition is under progress with 1st level of environment clearance
received.
Marginally upgrading estimates, tax incidence on dividend could significantly
impact earnings/valuations, Neutral
During 3QFY12, TPWR has not booked any dividend income in standalone
operation from Mining SPV, vs INR2b each booked in 1Q and 2QFY12. Stake transfer
to the tune of 75% of investment in Mining HOLDCO to Mundra UMPP SPV would
mean additional inflow in the form of dividend, which would help meet
commitment on debt front. However, this would mean that TPWR would continue
to pay higher taxes on dividend distribution.
We have currently not considered the dividend inflow and tax on the same in our
earnings/valuations. Thus, the transfer (possibly by end FY12, currently only in-
principal approval) could impact earnings and valuations sizably.
We currently expect TPWR to report consolidated net profit of INR19.8b for FY12
(up 13% YoY, vs INR18.8b earlier), and INR20.2b in FY13E (up 2% YoY, vs INR18.9b
earlier). Stock trades at P/E of 13x on FY13E basis. Maintain
Neutral
(TP of INR92/
sh).
13 February 2012
4

Tata Power
Tata Power: an investment profile
Company description
The Tata Power Company Limited (TPC) is India's largest
private sector power generating company with an
installed capacity of ~3GW. It has merchant power
portfolio of 200MW of the current installed capacity.
TPWR's operational capacity is expected to increase from
~3.GW in end FY10 to 8.2GW in FY13, an increase of ~3x.
Additionally, company is working on project
development of 6.2GW, of which 1.5GW of projects are
based on captive coal blocks.
Near term earnings sensitive to merchant price
movement.
Recent developments
Tata Power has written to MoP for tariff revision for
Mundra Project and need to be seen that how this
issue would be dealt by government and
beneficiaries.
Tata power is in final leg of commissioning Unit-I of
Mundra UMPP and has completed steam blowout
for Unit-II and synchronization is expected soon.
Key investment arguments
Equity funding requirement for entire 5.2GW of
projects under construction largely met. Returns on
these projects are capped and thus provide limited
upside.
Share of profit from KPC/Arutmin mines contributes
~50% of consolidated net profit and thus, sensitivity
of USD1/ton variance in coal realizations in FY11E
and FY12E is 2%.
Future growth in capacity from projects under
development (6.2GW) could be equity dilutive.
Valuations and view
We currently expect TPWR to report consolidated
net profit of INR19.8b for FY12 (up 13% YoY, vs
INR18.8b earlier), and INR20.2b in FY13E (up 2% YoY,
vs INR18.9b earlier). Stock trades at P/E of 13x on
FY13E basis. Maintain
Neutral
(TP of INR92/sh).
Sector view
Key investment risks
Mundra UMPP project plus investment in KPC/
Arutmin mines is valued at Rs20/sh (20% of SOTP
value).
CPSUs are our preferred sectoral theme, given
acceleration in earnings growth and comfortable
valuations. We are Neutral on private IPPs, given our
cautious view on merchant prices. We believe that
SEB finances will witness a gradual improvement
going forward.
EPS: MOSL forecast v/s Consensus (INR)
MOSL
Forecast
8.3
8.5
Consensus
Forecast
8.7
8.7
Variation
(%)
-4.6
-2.3
Target Price and Recommendation
Current
Price (INR)
111
Target
Price (INR)
92
Upside
(%)
-17.1
Reco.
Neutral
FY11
FY12
Stock performance (1 year)
Tata Power
150
Sens ex - Reba s ed
Shareholding Pattern (%)
Dec-11
Promoter
Domestic Inst
Foreign
Others
31.9
28.6
23.3
16.2
Sep-11
31.9
28.6
23.4
16.2
Dec-10
31.9
27.8
24.1
16.2
130
110
90
70
Feb-11
Ma y-11
Aug-11
Nov-11
Feb-12
13 February 2012
5

Tata Power
Financials and Valuation
13 February 2012
6

Tata Power
N O T E S
13 February 2012
7

Tata Power
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13 February 2012
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