The write-off due to stripping costs related to its mining assets took a toll on the company’s profitability.
While lower coal prices saw Tata Power’s consolidated revenues slip 6 per cent year-on-year to Rs 4,340 crore in the December quarter, high one-time expenses led to an 82 per cent fall in consolidated net profit to Rs 93 crore.
The quarter saw coal companies modify certain contracts relating to mining costs (including stripping) and reviewed the estimates of stripping costs deferred to future periods )subsequent to the receipt of an updated resource assessment technical report).
For Tata Power, this has resulted in a charge of Rs 370 crore during the quarter, including about Rs 300 crore for the period prior to the current financial year.
The performance of its subsidiaries — NDPL and Powerlinks — was healthy. The two reported 45.5 per cent and 29.2 per cent year-on-year growth in revenues, respectively. But, despite the 60 per cent year-on-year increase in power trading volumes of Tata Power Trading Company to 1.1 billion units, its revenue and profit grew only 10 per cent and 12 per cent, respectively, as average realisations (led by lower fuel costs) fell 31 per cent to Rs 5.44 per unit.
Going ahead, Tata Power is mulling a 25 per cent increase in the mining capacity of its two Indonesian coal mines (it owns 30 per cent stake) to 75 million tonnes by the end of 2010-11. Hence, even as recurring mining costs are seen rising, a part of this pressure will be offset by higher coal production, say analysts.
While the recent Budget proposal for a clean energy cess on imported and domestic coal is likely to be passed on to customers, the increase in the minimum alternate tax is seen to have a marginal impact on the company.
More From This Section
Given that analysts have valued the stock at Rs 1,500 based on different valuation methods and the current price of Rs 1,333.40, there is room for limited upside.
With contributions from Ram Prasad Sahu and Puneet Wadhwa