5 April 2012
Tata Power
Bumi production guidance of 100m tons by CY14,
lower realisation/cost, Neutral
In its CY11 financial results press release, BUMI guides for 75m tons of
production in CY12 (up 14% YoY), which will be ramped up to 100m tons by
CY14 from KPC/Artumin mines. Realisation is expected at US$90/ton (vs
US$92/ton in CY11), but expects cost to moderate by US$2/ton, given lower
strip ratio (between 10-10.5 in CY12, vs 11.5 in CY12).
Our estimates factor in production/sales volume of 72.5/71m tons in CY12
and realisation/cost of US$90/ton and US$42.5/ton (unchanged YoY). Also,
we estimate 100m tons production by CY15, based on discussion with Tata
Power (TPWR IN, Mkt Cap US$4.8b, CMP INR103, Neutral). Assuming current
guidance by BUMI, our FY13E consolidated earnings could be revised
upwards by 25%.
TPWR is net long on coal to the extent of ~20m tons and recent softening of
coal prices (down US$5/ton QoQ) could impact earnings, while benefit of
savings from Mundra UMPP (owing to low fuel cost) would materialise only
in phases as project is commissioned over FY12-14E.
TPWR’s stock has held firm due to the expectation of possible “review” of
Mundra UMPP tariff. Our interaction with Bureaucrats and Regulators
suggest that signed PPA is very important document and thus, the review
needs consent of several stakeholders and may not come in haste. Maintain
Bumi targets KPC/Arutmin mines production at 100m tons in CY14,
Realisation muted in CY12
PT Bumi Resources Tbk (BUMI) released a media statement highlighting its
performance during CY11 and guidance. Key excerpts are:
Production target for CY12 at 75m tons (up 14% YoY) and 100m ton by CY14
(CAGR of ~14%) from KPC/Arutmin mines.

Tata Power
Strip ratio had increased during CY11 at 11.51 bcm/ton (up 10% YoY) led by
opening up of new mines. Management expect CY12 stripping ratio to stabilise
between 10 and 10.5.
Consequently, production cash cost to is expected at US$40/ton, v/s US$42/ton
YoY. This will however be reviewed in 1HFY12.
Realisation is expected to be muted, but is estimated to be at least US$90/ton
during CY12, vs US$92/ton YoY.
Sales (m tons)
Trend in production (m tons)
Realization and Production cash cost (US$/ton)
Our estimates are conservative, in-line with TPWR’s views on the possible
We currently model production volume of 72.5m tons and 71m tons of sales for
CY12, lower than 75m tons production/sales guided by BUMI for KPC/Arutmin
mines. Also, we expect gradual ramp-up in production, given challenges in
opening up new mines. We currently expect 100m tons volumes by CY15, a year
later than current guidance by BUMI.
On realisations front, we already factor US$90/ton in CY12, while we expect cost
of production to remain flat YoY at US$42.5/ton in CY12.
Assuming BUMI’s guidance for CY12, our consolidated earnings for TPWR would
get upgraded by ~25% (to INR25b, vs current PAT estimate of INR20b).
5 April 2012

Tata Power
Lower coal prices could be detrimental; savings in losses for UMPP too
would come in staggered way
Given increase in production volumes to ~75m tons by FY14, TPWR remains net
long on coal to extent of 18-20m tons. Thus, the continued softening of coal
prices could be put further strain on consolidated earnings of TPWR.
Also, the savings on account of losses owing to softening coal prices for Mundra
UMPP project may not be realized in near term, as capacity would be
commissioned in phased manner and full operations would be achieved only in
Net long position on coal could pose risk to consolidated earnings, if coal price softening continue
Productio TPWR Share
based on Exposed
on coal
Indonesia coal price index chart (US$/ton
Mundra UMPP tariff “review” need to be in the light of several
stakeholder’s interest, unlikely to materialize in haste
Our interactions with Bureaucrats and Central Regulator indicates that signed
contract is an important document. Review of the existing Power Purchase
Agreements (PPA) involves several stakeholders and thus, would be subject to
the decisions of the discoms/state regulators.
Hence, the issue of aggressive bidding by private developers is unlikely to be
addressed in haste and will have its own set of challenges, given 1) the current
already strained 'Centre- State' relationships, 2) deterioration of both the Centre
and State finances coupled with increased demands from several sectors
5 April 2012

Tata Power
(including social spending); the possibilities of financial maneuverability has
declined meaningfully to accommodate any bailout requests, and 3) increased
activism by civil society, aggressive posturing by government watchdogs like CBI,
CVC and CAG, coupled with active judiciary have impacted decision making,
particularly for matters involving signed contracts.
In a media article (http://timesofindia.indiatimes.com/city/hubli/Green-hurdle-
for-Kudgi-project/articleshow/12527179.cms), Gujarat government has stated
same stance of matter being referred to CERC for any such review. In our
understanding, this would be well debated, before any conclusion is arrived and
thus, any interpretation that tariff revision is on cards looks illusionary.
Valuations and view
We expect TPWR to report consolidated PAT of INR19.7b in FY12E (up 12% YoY)
and INR19.6b in FY13E (stagnant YoY). In our view, the possibility of PPA
“review” for Mundra UMPP project is built in the current market price, which
may not materialize in haste. This along with downward trend in coal prices
could impact earnings and valuations.
Our SOTP based TP on the stock stands at INR92/sh, and re-iterate our Neutral
5 April 2012

Tata Power
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5 April 2012