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Tata Power narrowed its consolidated loss to Rs 75 crore for the December 2013 quarter versus Rs 329 crore last year, but the overall performance is a far cry from Street’s estimates, which was expecting a net profit of Rs 223 crore on sales of Rs 9,329 crore. Thus, the stock fell from Rs 76 intra-day to a low of Rs 73.75 before closing at Rs 75 on Friday, a decline of 0.33% over its previous closing.
A large part of the lower than expected profits can be attributed to the 4% fall in revenues to Rs 8,700 crore, which was primarily dragged by its standalone power business (22% of the total) wherein sales volumes, and secondly, the coal business. Standalone generation suffered due to lack of fuel and demand for its power. Similarly, coal business was dented by lower realisations (gross impact of Rs 1,045 crore) despite higher quantity of coal sold and gains from rupee depreciation (thus net impact Rs 142 crore). These partly offset the revenue gains in Mundra UMPP project and Maithon. The commissioning of all five units at Mundra (versus three last year) added Rs 483 crore to revenues, while Maithon power project gained because of recovery of the fixed cost and solar business adding Rs 215 crore to revenues.
However, lower generation and to some extent plant unavailability meant that the company spent less on fuel costs (including purchases). On a consolidated basis, the two main components of costs namely, the cost of power purchased fell 26% to Rs 1,635 crore while fuel costs fell by 14% to Rs 2,307 crore.
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Some of these gains were offset by higher coal processing charges, transmission charges, and royalty for the coal mining and other expenses. Besides, other expenses jumped 29% year-on-year, largely due to Rs 152 crore of provision and tax adjustment for previous years in the coal business, which saw segment profits fall to just Rs 17 crore versus Rs 444 crore last year. Thus, consolidated operating profit fell 3.8% to Rs 1,786 crore. Further, other income stood at a negative Rs 94 crore (as forex loss increased 86% to Rs 160 crore) versus a positive Rs 11 crore last year. This along with higher finance cost led to a consolidated loss of Rs 75 crore. These were lower than Rs 829 crore loss of last year wherein the company had taken an impairment charge of Rs 600 crore. While analysts say the quarter had one-off impact to the tune of Rs 230 crore (gross), even after adjusting for the same the profit is lower than expectations.
Going ahead, the resolution on Mundra’s tariff is crucial as any delay will have its implications on the company's balance sheet because of the high debt and profitability. Further, regulatory assets of about Rs 7,000 crore are yet to be approved and could weigh on the financials. Though the market believes that current valuations are attractive, given the regulatory uncertainties in the generation and distribution businesses analysts are awaiting clarity.
