Tata Power's Q4FY18 results (Neutral) - Results below est; Divestment gathers momentum
Q4FY18 consolidated result highlights
- Mundra reported an under recovery of Rs0.93/0.84 per unit in Q4FY18/FY18 (vs Rs0.85/0.60 per unit in Q4FY17/FY17. Mundra availability was 91%/79% in Q4FY18/FY18 (normative of 80%). As a result, Mundra UMPP’s reported a loss of Rs4.9bn/Rs14bn in Q4FY18/FY18 (vs loss of Rs1.4bn/Rs9bn in Q4FY17/FY17).
- Increase in coal prices led to increase in Coal mines (Excl Arutmin mines) profit contribution to Rs3bn/Rs12bn in Q4FY18/FY18 (vs Rs2.4bn/Rs5.1 in Q4FY17/FY17). Gross spread (realisation minus cash cost) increased to USD 24.4/25 per ton in Q4FY18/FY18 (vs USD23.2/16.1 per ton in Q4FY17/FY17)
- Standalone EBITDA was Rs5.9bn/Rs23.4bn (flat/12% yoy). Standalone adj PAT came in at Rs1.7bn/10.9bn. Tata Power reported standalone losses due to net impairment of Rs42bn in Mundra Investment (on account of rise in coal prices)
- Cons. profit of Rs2.1bn (Rs12bn in FY18)(adj. for exceptional item) for Q4FY18 was below estimate of Rs5.3bn. Profit has been adj. for a) write back of good will of coal companies to Rs18bn b) Rs1.1bn of write off of profit related to Zambia c) provision related to capital expenditure of few projects
- Divestment process has gained momentum in Q4FY18 with company board approving sale of investment in Tata Communication and defence business at a value of Rs22bn each. The proceeds will be used to reduce debt.
Key positives: Definite steps to divest Telecom and Defence business; Mumbai PPA with BEST, state DISCOM, rolled over till FY19
Key Negatives: Coal Supply at discounted prices under Indonesian domestic market obligation
Impact on financials: Maintain our earnings estimates
Valuations & view
We see no major rerating triggers in the next 12-18 months barring unlocking of value from non-core assets and listing of renewables portfolio. We believe the unlocking of value through sale of shares will be a one off event and timing of these events add to uncertainty. As a result, we believe current valuations of 1.4x FY19E P/BV and 13x FY19E earnings offer limited upside. Maintain Neutral with a revised price target of Rs92 (valuing renewables portfolio separately at 8xEV/EBITDA).
Tata Power is an integrated power utility based in India. Co. has an installed generation capacity of 8,584 MW in India and a presence in all the segments of the power sector viz. Fuel and Logistics, Generation (thermal, hydro, solar and wind), Transmission, Distribution and Trading. Co. maintains public-private partnerships in Generation, Transmission and Distribution in India. Co. is also active in renewable energy in India and has developed and fully commissioned a 4,000 MW Ultra Mega Power Project at Mundra (Gujarat) based on super-critical technology. Co.'s international presence includes strategic investments in Indonesia, Singapore, South Africa, Australia and Bhutan.
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