Stock Review: TATA POWER

Tata Power, India's largest fully integrated power company showed a muted growth of 6% in its earnings for the financial year 2011. But given the current situation, where all power companies are bleeding with high fuel cost and lower tariff realisations, a muted growth is still a good growth.

In FY11, the company's total income grew by 2% to . 18,211.8 crore. With its integrated business model, Tata power is present in power business — generation, distribution and transmission — and coal mining business through its various subsidiaries and joint ventures. In the 2011 fiscal, its power business declined 2% to . 12,305.6 crore. However, its coal business grew by 14%, despite lower quantity of coal sold, as prices shot up.

The 34% fall in its last quarter profit to . 625 crore was purely due to the . 358 crore extraordinary forex gains and . 83 crore of tax provision reversal of last year. The operating performance during the quarter was, however, healthy. Its total production increased by 7% to 3,532 MUs for the March quarter FY11. This could have been higher, but its distribution arm decided to purchase from outside as power was available at cheaper prices.

Tata power's largest Indian subsidiary, North Delhi Power, which is engaged in the power distribution business in the Delhi region faced some margin pressure, as it was unable to hike selling price per unit. However, the company will be hiking the tariffs in the first half of the fiscal 2012.

As against a capacity addition of merely 225MW during FY11, Tata Power is set to add at least 1500 MW of generation capacity in FY12 — nearly half of its existing capacity. Its 1050-MW Maithon project will commission fully in phases through the year, while the first unit of the 4000-MW ultramega power plant at Mundra is expected to commission by mid-FY12.

The company is in a comfortable position considering the fuel supply, as it is having excess coal, which it is currently selling. This effectively hedges its performance against the high coal prices. With all its projects progressing well as scheduled, the company's profitability growth is expected to remain strong in FY12.