MOSL: TATA POWER (Sell)-Tariff adjustment at Maithon impacts performance-Accelerates process to sell non-core assets

Tata Power: Tariff adjustment at Maithon impacts performance; Accelerates process to sell non-core assets; Maintain Sell

(tpwr IN, Mkt Cap USD3.6b, CMP INR87, TP INR74, 15% Downside, Sell)

Tata Power’s 3QFY18 consol. adj. PAT declined 23% QoQ to INR2.9b (below our estimate of INR5.6b), primarily due to tariff adjustment at Maithon. PAT is adjusted for (a) profit of INR159m for discounted operations and (b) gain of INR2.9b on recognition of deferred tax assets on indexation benefit on investments held for sale. Reported PAT grew 161% QoQ (1% YoY) to INR6.1b.

Accelerates process to sell non-core assets; Maintain Sell

TWPR has initiated various restructuring/sale exercises that will help it simply deleverage and direct capital toward core operations. It has announced plans to:

• Dispose its Strategic Engineering Division (SED), part of its standalone operations. It generated EBITDA of ~INR600m in FY17.
• Sell its investment in Tata Ceramics, ~57% subsidiary. It had a carrying value of INR91m, revenue of ~INR464m and PAT loss of INR5.9m in FY17.
• Sell investment in Tata Projects, ~48% associate. It has a carrying value of ~INR4.9b, revenue of ~INR60b and PAT of ~INR1.3b in FY17.
• Sell stake in Panatone Finvest, ~39% associate that owns ~88m shares in Tata Communication (TCOM). At TCOM’s CMP, the attributable value is ~INR23b.