22 May 2017
Results Update | Sector: Utilities
Tata Power
Sell
BSE SENSEX
30,465
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val, INRm
Free float (%)
S&P CNX
9,428
TPWR IN
Net Debt to Equity increases to ~3.5x
2,705
Lack of RoE accretive growth and high leverage; Maintain Sell
227.6 / 3.4
n
Tata Power’s (TPWR) 4QFY17 PAT, adjusted for the write-off of INR6.5b
849 / 405
relating to advance paid to DOCOMO for TTSL, was down 36% QoQ to
-3/4/3
INR3.9b (est. INR5.4b) on lower billing in Delhi distribution and higher
242.8
50.1
interest cost. EBITDA (incl. JVs) was down 11% QoQ to INR19.6b. For FY17,
CMP: INR84
TP: INR67(-20%)
Financials & Valuations (INR b)
2017 2018E
Y/E Mar
Net Sales
279.0
341.6
EBITDA
58.5
67.1
PAT
14.0
18.3
EPS (INR)
5.2
6.7
Gr. (%)
21.1
30.7
BV/Sh (INR)
43.5
48.7
RoE (%)
11.2
14.6
RoCE (%)
6.6
6.6
P/E (x)
16.3
12.5
P/BV (x)
1.9
1.7
2019E
358.7
69.5
19.0
7.0
3.8
54.2
13.6
6.5
12.0
1.6
Estimate change
TP change
Rating change
EBITDA (inc. JVs) was up 2% YoY to INR78b, while adj. PAT was up 83% YoY to
INR13.9b on lower tax. Net Debt at INR482b (incl. perpetual securities of
INR15b), represented debt/equity ratio of 3.5x (excl. perpetual securities
which is reported as part of net worth).
n
Standalone:
EBIT (incl. rate regulatory items), adj. for the provision of
INR0.3b for Trombay U-6 plant, was flat YoY due to stricter regulatory norms
and lower regulatory assets. The management highlighted the risk of
Trombay generation PPAs expiring in March 2018; clarity is likely in the next
couple of quarters.
n
CGPL & Coal:
Under-recovery increased from INR0.7/kWh in 3QFY17 to
INR0.86/kWh in 4QFY17. PAT loss was however lower (INR1.4b vs. INR2.4b in
3Q) on FX reversal and lower interest cost (on waiver by parent). Coal mines
EBITDA was up 29% QoQ to INR5.7b (ex-Arutmin) on higher coal prices.
n
Sale of non-core investments:
The management assured progress on sale of
non-core investments in FY18. Stake in Tata Sons is not considered as non-
core.
Lack of RoE accretive growth opportunities and high leverage; Sell
n
TPWR’s net worth is down by 21% since 1HFY17 to INR117b as at the end of
FY17 due to change in accounting of investments (from fair value to cost).
Resultantly, RoEs estimates for FY18-20E now look higher at ~13-14% v/s.
~10-11% earlier. We thus revise our P/BV multiple from 1x earlier to 1.2x.
The TP is revised marginally lower to INR67/sh. from earlier 69/sh. as higher
multiple is offset by lower BV. TPWR is facing slower growth in the regulated
business, risk of expiry of generation PPAs, competition in RE and a highly
leveraged balance sheet. We maintain
Sell
rating.
Quarterly Performance (Consolidated)
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Dhruv Muchhal
(Dhruv.Muchhal@MotilalOswal.com); +91 22 6129 1549
Sanjay Jain
(SanjayJain@MotilalOswal.com); +91 22 6129 1523

Tata Power
Highlights from analyst meet
n
n
n
n
n
n
Electricity demand potential in India:
Reliability and available of electricity can
drive significant pent-up demand potential. India uses ~60-90GW of diesel
generator sets which can be replaced with improvement in electricity supply.
Affordability however a constraint:
India’s per capita expenditure on electricity
is higher than most of the developed nations. Controlling cost would be key to
drive electricity consumption as higher prices leads to increase in leakages.
There is no elasticity in the system to accept higher tariffs.
Flexible operations:
With rising RE, coal plants would have to learn to operate
on multiple shifts.
Trombay PPA expiry risk:
Trombay has a capacity of 1.8GW of which 0.4GW is
hydro and remaining is coal/gas/oil. There PPAs for these capacities is expiring
in March 2019. It is uncertain if the regulator will approve extension of these
PPAs. We estimate the Trombay assets have a regulated equity of ~INR20b,
which can be at risk if the PPAs are not extended.
Defence:
While the opportunity size is huge, the predictability of the business is
difficult. Government has been very slow in awarding contracts. Defence
generated revenue of INR5.5b in FY17.
Sale of investments:
The management assured that some of the non-core
investments would be sold in FY18. The stake in Tata Sons and probably Tata
Projects is not considered non-core for now. The management is also hopeful of
concluding the sale in Arutmin coal. Sale of assets is must so deleverage the
balance sheet.
Q4FY17
5,215
260
1,950
840
130
1,050
4,030
5,700
720
430
210
-869
19,665
QoQ - %
3
-21
-11
-72
53
114
17
29
-12
-23
17
-154
-11
Remarks
·
Stricter norms, slowing growth and Unit 6 provision
·
Higher coal prices
·
Seasonal
·
Lower billing, lower carrying cost and provisions
·
·
·
Operating efficiency and volumes
Higher generation
Higher coal prices
Exhibit 1: TPWR adj. EBITDA (incl. JVs) – INR m
Standalone
CGPL
Maithon
Delhi
Trading
Solar
RE
Coal - KPC/BSSR
Coal Infra/logistics
IEL
Powerlinks
Others
Adj. EBITDA (incl. JVs)
Q3FY17
5,054
330
2,180
3,000
85
490
3,430
4,410
820
560
180
1,603
22,141
Source: MOSL, Company
Exhibit 2: CGPL
Revenues
EBITDA
PAT
Generation
Sales
Availability
FoB price of coal
Revenue
Under recovery
INR m
INR/kwh
INR m
INR m
MU
MU
%
USD/t
INR/kWh
INR/kWh
1QFY17
12,150
2.4
2,190
0.4
-3,830
5,420
4,987
63
42
2.47
-0.30
2QFY17
15,920
2.4
2,460
0.4
-800
7,196
6,629
85
45
2.43
-0.43
3QFY17
14,970
2.4
330
0.1
-2,440
6,849
6,304
77
52
2.37
-0.70
4QFY17
17,950
2.6
260
0.0
-1,420
7,995
6,919
93
48
2.36
-0.86
Source: MOSL, Company
22 May 2017
2

Tata Power
Exhibit 3: Maithon Power
1QFY17
Revenues
EBITDA
PAT
Generation
Sales
Availability
Regulated equity
INR m
INR/kwh
INR m
INR/kwh
INR m
MU
MU
%
INR m
5,990
3.4
2,150
1.2
670
1,845
1,742
95
14,440
2QFY17
5,690
3.8
1,930
1.3
530
1,596
1,501
81
14,440
3QFY17
6,240
3.3
2,180
1.2
740
1,984
1,870
97
14,440
4QFY17
6,130
3.4
1,950
1.1
610
1,932
1,826
94
14,440
Source: MOSL, Company
Exhibit 4: Delhi Distribution
1QFY17
Revenues
EBITDA
PAT
Regulated equity
Regulatory assets
INR m
INR m
INR m
INR m
INR m
17,840
2,750
820
12,480
50,320
2QFY17
20,120
-1,340
690
12,560
47,100
3QFY17
14,980
3,000
1,130
12,690
46,500
4QFY17
13,060
840
10
11,630
45,740
Source: MOSL, Company
Exhibit 5: Renewables
1QFY17
TPREPL (Renewable)
Revenues
EBITDA
PAT
Operating capacity
WREPL (Renewable)
Revenues
EBITDA
PAT
Capacity
INR m
INR/kwh
INR m
INR m
MW
410
450
2,700
7.3
2,550
60
1,141
3,160
7.1
2,870
1,220
1,141
INR m
INR/kwh
INR m
INR/kwh
INR m
MW
770
6.4
770
6.4
110
312
870
5.9
880
6.0
150
282
710
8.8
880
10.9
138
370
830
6.3
1,160
8.9
290
449
2QFY17
3QFY17
4QFY17
Source: MOSL, Company
22 May 2017
3

Tata Power
Financials and Valuations
Income Statement
Y/E March
Net Sales
Change (%)
Total Expenses
EBITDA
% of Net Sales
Depn. & Amortization
EBIT
Net Interest
Other income
PBT before EO
Regulatory inc./(exp)
EO expense
PBT after EO
Tax
Rate (%)
Reported PAT
Minority and Associates
Adjusted PAT
Change (%)
2012
260,014
33.7
211,012
49,002
18.8
13,346
35,656
15,271
2,688
23,073
0
18,000
5,073
14,755
290.9
-9,683
-1,194
7,123
-65.4
2012
2,373
110,114
112,487
16,313
353,598
6,471
488,868
334,118
106,028
228,091
126,592
48,444
26,454
187,904
16,847
22,714
45,216
103,128
128,617
27,501
101,115
59,288
488,868
2013
330,254
27.0
265,807
64,447
19.5
20,517
43,930
26,355
3,692
21,267
0
8,500
12,767
11,780
92.3
987
-1,842
7,646
7.3
2013
2,373
105,012
107,385
20,646
393,823
10,254
532,108
504,687
148,396
356,291
23,576
57,241
26,427
209,278
20,265
33,050
24,673
131,290
140,706
35,409
105,298
68,572
532,108
2014
356,487
7.9
288,009
68,478
19.2
27,296
41,182
34,399
2,273
9,055
0
0
9,055
10,084
111.4
-1,028
-2,267
-3,295
-143.1
2014
2,373
104,733
107,106
22,733
416,725
11,379
557,943
550,345
179,730
370,616
33,887
63,320
26,787
219,373
20,733
45,426
18,956
134,258
156,040
45,740
110,300
63,333
557,943
2015
337,276
-5.4
274,264
63,012
18.7
21,742
41,270
36,993
4,167
8,445
6,393
0
14,837
10,749
72.4
4,088
-2,410
1,678
-150.9
2015
2,705
122,716
125,421
24,926
423,419
14,014
587,779
583,351
202,217
381,133
36,505
66,258
27,326
243,207
18,442
55,640
21,064
148,062
166,650
52,354
114,296
76,557
587,779
2016
374,802
11.1
286,876
87,926
23.5
23,764
64,162
34,765
2,970
32,367
-10,194
2,805
19,367
8,693
44.9
10,674
-1,940
11,539
587.5
2016
2,705
128,434
131,139
25,814
416,209
14,875
588,037
617,804
202,550
415,254
45,441
46,767
28,855
240,748
18,061
52,042
16,740
153,905
189,029
61,277
127,752
51,720
588,037
2017
278,977
-25.6
220,510
58,467
21.0
19,886
38,581
31,140
2,022
9,464
-6,095
6,515
-3,145
-458
14.6
-2,687
10,142
13,969
21.1
2017
2,705
115,090
117,795
18,690
503,198
17,598
657,280
597,716
150,507
447,209
21,779
17,325
108,592
226,458
15,996
38,321
20,521
151,621
164,083
55,290
108,793
62,375
657,280
(INR Million)
2018E
341,566
22.4
274,445
67,121
19.7
21,299
45,821
39,887
4,395
10,329
0
0
10,329
6,036
58.4
4,293
13,959
18,253
30.7
2018E
2,705
129,123
131,828
20,137
506,703
17,598
676,267
633,074
171,807
461,267
21,779
17,325
115,297
216,181
12,476
35,870
16,214
151,621
155,583
46,790
108,793
60,598
676,267
2019E
358,733
5.0
289,198
69,535
19.4
22,536
46,998
39,933
4,395
11,460
0
0
11,460
6,625
57.8
4,835
14,117
18,951
3.8
2019E
2,705
143,855
146,560
21,477
507,255
17,598
692,890
666,264
194,343
471,921
21,779
17,325
121,913
217,886
12,794
37,726
15,745
151,621
157,935
49,141
108,793
59,952
692,890
Balance Sheet
Share Capital
Reserves
Net Worth
Minority Interest
Total Loans
Deferred Tax Liability
Capital Employed
Gross Block
Less: Accum. Deprn.
Net Fixed Assets
Capital WIP
Goodwill
Investments
Curr. Assets
Inventories
Account Receivables
Cash and Bank Balance
Others
Curr. Liability & Prov.
Account Payables
Provisions & Others
Net Curr. Assets
Appl. of Funds
(INR Million)
22 May 2017
4

Tata Power
Financials and Valuations
Ratios
2012
Basic (INR)
EPS
Cash EPS
BV/Share
DPS
Payout (%)
Valuation (x)
P/E
Cash P/E
P/BV
EV/EBITDA
Dividend Yield (%)
FCF(pre-int) to EV yield(%)
Return Ratios (%)
RoE
RoCE (post-tax)
RoIC (post-tax)
Working Capital Ratios
Fixed Asset Turnover (x)
Asset Turnover (x)
Debtor (Days)
Inventory (Days)
Leverage Ratio (x)
Net Debt/EBITDA
Debt/Equity
3.0
8.6
47.4
1.3
41.6
2013
3.2
11.9
45.3
1.2
35.7
2014
-1.4
10.1
45.1
1.3
-90.0
2015
0.6
8.7
46.4
1.3
209.5
2016
4.3
13.1
48.5
1.3
30.5
2017
5.2
12.5
43.5
1.3
25.2
2018E
6.7
14.6
48.7
1.3
19.3
2019E
7.0
15.3
54.2
1.3
18.6
124.3
8.9
1.7
10.1
1.7
3.3
15.2
5.0
1.3
6.8
2.0
8.8
16.3
6.7
1.9
12.5
1.5
-3.6
12.4
5.7
1.7
11.0
1.5
5.1
12.0
5.5
1.6
10.6
1.5
6.0
6.0
5.4
-39.8
7.0
7.0
1.1
-3.1
6.1
-1.1
1.4
6.1
2.7
9.0
9.9
8.0
11.2
6.6
7.0
14.6
6.6
3.8
13.6
6.5
3.9
1.1
0.5
32
24
6.3
2.4
2012
49,002
-30,279
8,470
-16,026
11,167
-65,299
-54,132
1,783
0
-4,512
-68,028
788
74,921
-15,576
-3,985
13,975
70,124
13,263
21,410
34,673
0.9
0.6
37
22
5.7
2.9
2013
64,447
-23,511
2,694
-10,833
32,796
-42,702
-9,906
2,753
-8,651
5,738
-42,863
2,858
28,779
-29,912
-4,001
-3,591
-5,867
-15,933
31,223
15,291
1.0
0.6
47
21
5.8
3.1
2014
68,478
38
5,861
-9,546
64,831
-43,361
21,469
2,204
-1,501
5,239
-37,418
259
7,234
-33,931
-3,696
-2,521
-32,654
-5,242
17,896
12,655
0.9
0.6
60
20
6.4
2.7
2015
63,012
-5,611
10,493
-8,085
59,809
-34,936
24,873
2,078
0
-5,891
-38,749
20,692
-1,026
-33,842
-5,121
-3,089
-22,386
-1,326
13,845
12,519
0.9
0.6
51
18
4.5
2.5
2016
87,926
20,488
-6,583
-4,295
97,536
-39,864
57,672
2,141
0
-7,044
-44,767
149
-13,037
-33,515
-5,908
-3,369
-55,680
-2,911
12,616
9,706
0.6
0.4
50
21
8.3
3.5
2017
58,467
3,090
8,637
458
70,652
-35,000
35,652
9,305
-92,490
20,977
-97,208
0
96,440
-31,140
-5,177
0
60,123
33,567
12,108
45,675
0.7
0.5
38
13
7.3
3.2
2018E
67,121
-2,530
0
-6,036
58,555
-35,358
23,198
14,217
0
0
-21,141
0
3,506
-39,887
-5,339
0
-41,721
-4,306
9,543
5,237
0.8
0.5
38
13
7.1
2.9
Cash Flow Statement
EBITDA
FX gain/loss
WC
Others
Direct taxes (net)
CF from Op. Activity
Capex
FCF
Int & div income
Investments(subs/JVs)
Others
CF from Inv. Activity
Share capital
Borrowings
Finance cost
Dividend
Others
CF from Fin. Activity
(Inc)/Dec in Cash
Opening balance
Closing balance
(INR Million)
2019E
69,535
178
0
-6,625
63,087
-33,190
29,897
14,355
0
0
-18,835
0
552
-39,933
-5,339
0
-44,721
-469
5,237
4,768
22 May 2017
5

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Tata Power
Disclosure of Interest Statement
Analyst ownership of the stock
No
Served as an officer, director or employee -
No
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Tata Power
22 May 2017
Motilal Oswal Tower, Level 9, Sayani Road, Prabhadevi, Mumbai 400 025
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Motilal Oswal Securities Ltd
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