MOSL: TATA POWER (Sell)-Net long coal gains still some time away-Lack of RoE-accretive growth opportunities

​Tata Power: Net long coal gains still some time away; Lack of RoE-accretive growth opportunities; Sell

(TPWR IN, Mkt Cap USD3.2b, CMP INR79, TP INR68, 14% Downside, Sell)

• Tata Power’s (TPWR) consolidated PAT grew 126% YoY, off a low base, to INR1.64b, led by Welspun acquisition (completed in 3QFY17) and FX benefits at Mundra. The gain from higher coal prices in JVs was more than offset by higher under-recoveries at Mundra. PAT came in below estimate of INR4.1b, led by higher losses at Mundra due to low availability, lower other income and a higher effective tax rate. Consolidated net debt increased INR5.7b QoQ to INR473b.
• Mundra and Coal JVs: Mundra’s EBITDA declined ~INR3b YoY to a loss of INR770m, led by higher coal prices (from USD42/t to USD59/t) and a lag in benefit of fuel price escalation by CERC. However, PAT of coal companies (mining, infra and logistics) increased by INR2.3b YoY to INR3.7b. Had it received full benefit of fuel price escalation, Mundra’s EBITDA would have been higher by ~INR1.2b. Under-recoveries increased by INR0.06/kWh QoQ to INR0.93/kWh.
• Renewables: EBITDA (ex-standalone) increased from INR0.8b YoY to INR4.9b on capacity addition and acquisition of Welspun.
• Other regulated businesses: Maithon PAT grew 12% YoY to INR760m on lower interest cost. Delhi distribution PAT was unchanged YoY at INR840m, and regulated equity was down 3% YoY to INR43.2b.