Stock review: TATA POWER

Excess coal supply, which Tata Power has already tied up, tilted the scales for the utility while other power companies were hit due to rising fuel prices.

   Its December 2010 quarter net profit, at 442 crore, was up 377% against the year-ago period, mainly on account of its coal business. The consolidated net revenues fell 2% to . 4,441 crore, but operating profits increased 89% to . 1,085 crore. However, the quarter-on quarter performance was flat due to weak performance of the power business.

   Its coal business, Indonesian subsidiary Bumi Coal that contributes around 37% of the consolidated revenues, grew 17% during the quarter, as coal prices ruled 27% higher. This helped in turning the coal segment's . 171-crore loss last December to a profit of . 433 crore this quarter, which was 19% higher from the September quarter. The company's recent decision to call off the 15% stake sale in its coal business is positive for the company considering rising coal prices.

   During the December 2010 quarter, the power business performance was weak due to 33% lower average realisations . 3.7 per unit and 4% lower generation. Its Maithon project with 1,050-MW capacity is nearing completion and the management hinted that its 4,000-MW ultra-mega power project at Mundra may commission earlier than its original schedule of March 2012. This will allow Tata Power to sell power on a merchant basis, provided it is able to procure coal as planned.

The company has an installed power generation capacity of 2.9GW and a pipeline of around 11GW. It also distributes electricity to Mumbai and its suburbs and, through its subsidiary, in north Delhi. In January, in ET's Investor's Guide, we had put a 'buy' call based on the fact that the company had tied up on the coal supply front.

   In the Mumbai distribution business, it added around 20,000 new customers from Reliance Infra during the quarter, taking customer count to 1,00,000. In the rising coal price scenario, the company finds itself in a sweet position where it has more coal linkages than what it currently needs. Besides, the expected timely commissioning of its various power projects and a foot in the distribution and transmission business give Tata Power an edge over other power companies.

   At present, Tata Power is also supplying power to its competitor Reliance Infra to be distributed in certain parts of Mumbai. But this obligation is coming to an end starting April 2011, which will enable Tata Power to supply additional power to its own distribution region or expand geography.