The utility forays into renewable energy with a 10 per cent stake in Geodynamics.
With a 10 per cent stake in the Australian firm Geodynamics, the Rs 5,915 crore Tata Power is foraying into what could be a very important area —geothermal energy. Geodynamics produces geothermal energy, using heat generated at about 4,000 meters below the surface of the earth. At $37 million for a 10 per cent stake, the equity value for Geodynamics works out to Rs 1,630 crore.
The move is a good one because Australia has a target to increase the use of renewable energy to 20 per cent of total electricity supplies by 2020. Only last month, the government announced an Australian $50 million programme to help fund deep geothermal drilling. Geodynamics has projects in three Australian states and Tata Power would be looking to cash in on the growing renewable energy market in that country.
At the end of March 2008, Tata Power had cash and bank balances of around Rs 563 crore. Meanwhile, the June quarter saw the stand-alone net sales rise 34 per cent y-o-y to Rs 2,026 crore. While realisations from power plants were strong, increasing at 33 per cent y-o-y to Rs 4.86 per unit, the utility didn’t really see any big increase in volumes. Thus, despite the higher fuel costs being passed on, the operating margins fell 170 basis points to 15 per cent.
The Bumi coal mines in Indonesia, in which Tata Power holds a 30 per cent stake, did well in the June 2008 quarter, posting revenues of US$ 830 million, an increase of 44.4 per cent y-o-y. Realisations were up though volumes of coal sold were down 6.5 per cent mainly because the company didn’t have adequate stocks. Bumi expects reserves at its mines to rise significantly by the end of 2008 with drilling in progress at several blocks. Moreover, only 45 per cent of its mine at KPC has yet been explored.
Tata Power is expected to turn in a consolidated net profit of around Rs 1,500 crore in FY09, on revenues close to Rs 7,600 crore. The stock has underperformed the market falling by 30 per cent since the start of year compared with a decline in the market of 26 per cent.
Analysts estimate a sum-of-the-parts valuation of around Rs 1,500 for the stock, with the power business contributing Rs 440 per share, the Delhi distribution Rs 80 per share, cash Rs 290 per share, the stake in Bumi Rs 473 per share and other businesses bringing in the rest. At Rs 1,088, therefore, there appears to be considerable upside in the stock.