Tata Power’s consolidated profits for the June 2009 quarter were driven more or less equally by both the coal and the power businesses. With the earnings before interest tax and depreciation (ebitda) margin up 500 basis points at 22 per cent year-on year, the ebitda rose 41 per cent year-on-year to Rs 962 crore. While the reported profits were up 93 per cent at Rs 358 crore, these include income from earlier periods and foreign exchange gains; the profit before tax was up 38 per cent at Rs 590 crore.
Revenues from the coal business rose a strong 14 per cent year-on — year with the business seeing margins expand by 300 basis points. With coal prices looking like they’re bottoming out, realisations from the Bumi coal mines, in which Tata Power holds a 30 per cent stake, should stabilise. The mines are profitable if coal fetches $60 per tonne and an average selling price of $50 per tonne, over the longer term, should enable Tata Power to repay the loans, of around $750 million, that it used to buy the stakes in the mines.
Most of the amount is due only in 2014-15, by which time the Mundra plant should be seeing cash flows. Industry watchers estimate realisations for coal in the current year of $65 per tonnes. Meanwhile Tata Power recently raised approximately Rs 1,650 crore through GDRs, priced at Rs 1,090 per share. That would form part of the Rs 3,000 crore of equity needed to fund projects over the next three years. Apart from strengthening the balance sheet, it should speed up execution for a capacity of 1800 MW. The 4,000 MW Mundra UMPP is on track with the first 800 MW unit scheduled to be commissioned in September 2011.
While merchant sales currently comprise a very small portion of Tata Power’s sales, at just around 5 per cent, this share should increase. In the June quarter merchant sales fetched the company around Rs 5-6 per kwh. The company plans to increase generation capacity five-fold from 2785 MW currently to 13,000 MW by 2014. Analysts attribute a sum-of-the parts valuation to the stock of Rs 1400 per share.
