TPWR’s Q2 adj. PAT at `3.7 bn was in line with our/street estimates.
TPWR’s Q2 adj. PAT at Rs 3.7 bn was in line with our/street estimates. Renewables, distribution and regulated businesses were the key growth drivers. Underlying Ebitda at Rs 50 bn in H1FY19 signals on-track performance (annualised underlying Ebitda of Rs 100 bn).
The Supreme Court has directed CERC (the regulator) to consider PPA revision for imported coal-based plants of Tata Power, Adani Power and Essar Power based on recommendations of the High Powered Committee (HPC) within a stipulated timeframe of 8 weeks. CERC is to hear various stakeholders. TPWR’s Mundra has fuel under-recovery of `0.83/unit (negative `43/share in our SoTP of `90). Recommendations by HPC suggest a case for tariff revision, if approved by CERC, of 30-40 paise/unit post adj. for coal mining profits, lenders share etc., – which will rerate valuations. Maintain ‘Buy’.
TPWR’s renewable portfolio reported steady Ebitda of Rs 6.3 bn (up 33% y-o-y) and added 400 mw in H1. Management remains upbeat in renewable space – targets 3x capacity addition in 3-4 years. DMO in Indonesia (which mandates selling 25% coal locally at a discount) impacted profitability of coal companies (down 11% y-o-y in H1) despite elevated imported coal prices. Lower coal profitability impacted complete offset of Mundra losses.
Management expects DMO to recede by CY18 end. Net D/E reduced to 2.27x in Q2 vs. 2.9x y-o-y. However, q-o-q leverage remained flat due to increase in working capital at Maithon (regulated) and Mundra UMPP on rise in receivable days (due to change in law). TPWR refinanced $770 million foreign currency loan by rupee bonds to mitigate forex MTM impact. We believe, upcoming favourable CERC judgment to rerate valuations for TPWR.