Quarterly Update

25 AUG 2016

TATA POWER

BUY

POWER UTILITIES

Target Price: Rs 83

Steady quarter, adjusted for one-offs

Tata Powers (TPWR) Q1reported PAT of Rs 1.4 bn was dented by oneoffs (regulatory expense of Rs 2.7 bn, forex loss of Rs 1.6 bn). Adjusting
for the same, PAT was Rs 3.9 bn (down 10% QoQ). Sales and EBITDA
are not comparable QoQ due to implementation of IND AS from Q1.
Mundra UMPP dented by one-offs: Due to overhaul at Mundra during
Q1, there was lower plant availability; hence under-recovery of fixed
charge of Rs 0.9 bn. The effect is expected to be nullified in coming
quarters as there is now full availability. Further, there was O&M
expense of Rs 0.3 bn in Q1 (usually once a year). As a result, EBITDA
came in at Rs 2.2 bn (vs. Rs 3.2 bn YoY).

CMP
Potential Upside

: Rs 75
: 11%

MARKET DATA
No. of Shares
Free Float
Market Cap
52-week High / Low
Avg. Daily vol. (6mth)
Bloomberg Code
Promoters Holding
FII / DII

: 2,705 mn
: 67%
: Rs 202 bn
: Rs 79 / Rs 55
: 5.6 mn shares
: TPWR IB Equity
: 33%
: 26% / 24%

Leverage to increase post Welspun acquisition:Net debt as of Mar16 was Rs 404 bn. Post the acquisition of Welspun
Energy's 1.14 GW renewable assets at EV of Rs 92.5 bn (likely completion by Q2), Net debt will be ~Rs 495 bn. As a
result, leverage is expected to trend upwards to 2.85x (vs. 2.6x in Mar16), which is higher than normal project funding
levels of 70:30. We believe Mundra tariff hike is critical, else the company may require external funding.
Maintain estimates,
details on changes
Rs 74.75 does not
assumptions of (1)

rating (BUY) and TP (Rs 83), implying 11% upside from CMP:We await Q2 balance sheet and
due to IND AS implementation, before factoring in changes for the same.We believe CMP of
fully factor in significant improvement in cash flows of distribution assets; it reflects worst case
no tariff hike for UMPP, (2) coal prices sustaining around USD 45/ton and (3) nil growth.

(Continued on page 2)

Financial summary (Consolidated)

Y/E March

Key drivers

FY15

FY16

FY17E

342,699

365,308

335,485

347,912

EBITDA (Rs mn)

70,518

82,579

82,400

Adj PAT (Rs mn)

2,513

12,740

Con. EPS* (Rs.)

Sales (Rs mn)

FY18E

(Units)

FY16

FY17E

FY18E

Coal volume

(mn tons)

81

80

80

86,000

Coal realization

(USD/t)

45

43

44

15,911

18,402

Reg. equity

(Rsbn)

71

82

93

5.1

6.3

0.9

4.7

5.9

6.8

(70.2)

407.0

24.9

15.7

72.8

14.4

11.5

9.9

RoE (%)

2.2

9.9

11.5

12.1

100

EV/EBITDA (x)

8.6

7.3

7.0

6.5

80

DPS

1.3

1.2

1.9

2.2

EPS (Rs.)
Change YOY (%)
P/E (x)

Source: *Consensus broker estimates, Company, Axis Capital

Price performance
120

Sensex

Tata Power

60
Jul-15

Oct-15

Jan-16

Apr-16

Jul-16

01

25 AUG 2016

Quarterly Update

TATA POWER
POWER UTILITIES

(Continued from page 1)

Update on Compensatory tariff: Management indicated compensatory tariff award
by CERC (Central Electricity Regulatory Commission), based on theAppellate
Tribunal for Electricity (APTEL) order is likely to be in the same range as calculated
by CERC earlier i.e. ~Rs 0.25/kWh. We factor in turnaround in operations at
Mundra UMPP based on compensatory tariff to be awarded by CERC.Management
is enthused by the fact that customers (SEBs) have approached Supreme Court and
hearings will start soon. While outcome is uncertain, this would expedite resolution
of the matter.

Exhibit 1: Mundra UMPP - performance

(Rs/kWh)

Q2FY16

Q3FY16

Q4FY16

Q1FY17

5,494

5,996

6,394

4,987

Realization

2.6

2.5

2.5

2.4

Fuel cost

1.6

1.7

1.6

1.6

Fixed cost

1.0

0.9

0.8

1.1

Units sold (MU)

Source: Company, Axis Capital

Impact of IND AS: Significant changes in reported numbers due to implementation

of IND AS. Major ones are (a)Equity method of consolidation of JVs: Indonesian
Coal Co. and projects in South Africa/ Georgia etc. to be consolidated under this
method. No line by line consolidation going forward; (b)Generation assets at
Jojobera and IEL considered as financial lease
Coal mining profitability intact: In a falling international coal price environment,
Indonesian coal minings profitability was sustained despite a USD 1/ton QoQ
drop in realizationby cost-cutting efforts of the management

Exhibit 2: Coal business - performance

(USD/ton)

Q2FY16

Q3FY16

Q4FY16

Volumes (mtpa)

18.5

20.9

21.4

Q1FY17
20.6

Realization

45.5

42.1

41.2

39.6

Cash cost

27.9

26.3

28.3

25.1

Source: Company, Axis Capital

Exhibit 3: Improvement in operating cash flows

(Rs mn)
PAT
(+) Depreciation
(+/-) Inc./Dec. in working capital
Operating cash flows

FY15

FY16

2,513

13,523

21,970

23,764

(12,069)

19,504

12,414

56,791

Source: Company, Axis Capital

02

Quarterly Update

25 AUG 2016

TATA POWER
POWER UTILITIES

Exhibit 4: SoTP
Value

Base case

(Rs bn)

(Rs/shr)

Mumbai power business

74

28

Standalone power: generation, T&D @ 1.8x equity

Other power businesses

90

33

Power links (transmission), Delhi distribution, and IEL (generation JV with Tata
Steel) @ 2x core equity

ValnBumi stake (net of debt)

21

Base case:valued at 8x FY17E EV/EBITDA

Investments

13

- 20%holdco discount for listed stocks

- NIL value for unlisted TTSL

Value of1GW Maithon

NPV disc @ CoE of 13% (100% cost plus)

Value of4GW Mundra UMPP

Base case: assumed tariff hike; NPV @ CoE of 14%

Cash as of Mar '17

Excess Cash

15

Target price

224

83

Comment

Source: Axis Capital

Exhibit 5: Results update

Quarter ended
(Rs mn)
Net Sales
EBIDTA
Other income
PBIDT
Depreciation
Interest
PBT
Tax
Minority Interest & associate profit share (net)
Adjusted PAT
Extra ordinary income/ (exp.)
Reported PAT
No. of shares (mn)
EBIDTA margins (%)
PBIDT margins (%)
EPS - annualized (Rs.)

Jun-16
68,383
16,355
1,120
17,475
4,393
7,915
5,167
2,549
1,020
3,943
(2,567)
1,376
2,706
23.9
25.6
5.8

Jun-15
71,337
19,209
2,438
21,646
3,978
7,773
9,896
3,313
612
6,143
(2,439)
3,704
2,706
26.9
30.3
9.1

% Chg
(4.1)
(14.9)
(54.1)
(19.3)
10.4
1.8
(47.8)
(23.1)
66.7
(35.8)
(62.8)
(35.8)

12 months ended
Mar-16
96,261
21,644
321
21,965
5,923
9,006
7,037
1,697
454
4,372
(770)
3,602
2,706
22.5
22.8
6.5

% Chg
(29.0)
(24.4)
248.4
(20.4)
(25.8)
(12.1)
(26.6)
50.2
124.6
(9.8)
(61.8)
(9.8)

FY17E
335,485
82,400
3,267
85,666
22,128
33,101
30,436
11,389
3,136
15,911
3,396
19,307
2,705
24.6
25.5
5.9

FY16
365,308
82,579
2,970
85,548
23,764
36,476
25,309
10,629
1,940
12,740
(6,617)
6,123
2,705
22.6
23.4
4.7

% Chg
(8.2)
(0.2)
10.0
0.1
(6.9)
(9.3)
20.3
7.2
61.6
24.9
215.3
24.9

Source: Company, Axis Capital

Exhibit 6: Key subsidiary performance

Rs mn

Q2FY16

Q3FY16

Q4FY16

Q1FY17

14,030

14,770

15,720

12,150

3,410

3,180

3,860

2,190

(740)

(670)

90

(3,830)

17,450

11,660

16,630

17,840

2,510

1,440

2,900

2,750

790

30

1,180

820

Sales

5,650

5,820

5,890

5,990

EBITDA

1,860

1,920

2,240

2,150

370

410

740

670

3,610

4,010

4,290

2,430

120

220

350

350

(130)

(40)

40

(22)

CGPL (Mundra UMPP)

Sales
EBITDA
PAT
TPDDL
Sales
EBITDA
PAT
Maithon

PAT
Tata Power Solar
Sales
EBITDA
PAT
Source: Company, Axis Capital

03

Quarterly Update

25 AUG 2016

TATA POWER
POWER UTILITIES

Financial summary (Consolidated)

Profit &loss (Rs mn)
Y/E March
Net sales
Other operating income
Total operating income
Cost of goods sold
Gross profit

Gross margin (%)

Total operating expenses
EBITDA

EBITDA margin (%)

Depreciation
EBIT
Net interest

Cash flow (Rs mn)

FY15

FY16

FY17E

FY18E

342,699

365,308

335,485

347,912

342,699

365,308

335,485

347,912

(210,655) (220,945) (197,759) (203,700)

132,044

144,363

137,726

144,212

38.5

39.5

41.1

41.5

(61,526)

(61,784)

(55,327)

(58,212)

70,518

82,579

82,400

86,000

20.6

22.6

24.6

24.7

(21,970)

(23,764)

(22,128)

(23,623)

48,548

58,815

60,271

62,377

(38,703)

(36,476)

(33,101)

(31,423)

Y/E March

FY15

FY16

FY17E

FY18E

13,198

25,309

30,436

34,547

Depreciation & Amortisation

(21,970)

(23,764)

(22,128)

(23,623)

Chg in working capital

(12,753)

13,450

4,948

(2,564)

55,157

82,369

83,237

78,211

Profit before tax

Cash flow from operations

Capital expenditure

(35,986)

(61,650)

(19,243)

(26,016)

Cash flow from investing

(44,104)

(42,819)

(19,243)

(26,016)

Equity raised/ (repaid)

19,893

Debt raised/ (repaid)

11,328

(4,456)

(21,830)

(20,541)

Dividend paid

(4,114)

(3,890)

(5,957)

(6,890)

(11,595)

(44,822)

(60,888)

(58,853)

(542)

(5,272)

3,106

(6,657)

FY15

FY16

FY17E

FY18E

FDEPS (Rs)

0.9

4.7

5.9

6.8

Cash flow from financing

Net chg in cash

3,353

2,970

3,267

3,593

Key ratios

Profit before tax

13,198

25,309

30,436

34,547

Y/E March

Total taxation

(8,276)

(10,629)

(11,389)

(12,829)

62.7

42.0

37.4

37.1

4,923

14,680

19,047

21,718

CEPS (Rs)

8.7

11.0

15.3

16.8

DPS (Rs)

1.3

1.2

1.9

2.2

209.5

54.3

26.4

27.0

(3.9)

6.6

(8.2)

3.7

Other income

Tax rate (%)

Profit after tax
Minorities
Profit/ Loss associate co(s)
Adjusted net profit

Adj. PAT margin (%)

Net non-recurring items
Reported net profit

(2,894)

(2,557)

(3,753)

(3,932)

484

616

616

616

2,513

12,740

15,911

18,402

0.7

3.5

4.7

5.3

(834)

(6,617)

3,396

3,396

1,678

6,123

19,307

21,798

Balance sheet (Rs mn)

Y/E March
Paid-up capital

OPERATIONAL

Dividend payout ratio (%)

GROWTH
Net sales (%)
EBITDA (%)

(10.9)

17.1

(0.2)

4.4

Adj net profit (%)

(66.0)

407.0

24.9

15.7

FDEPS (%)

(70.2)

407.0

24.9

15.7

RoE (%)

2.2

9.9

11.5

12.1

RoCE (%)

8.6

10.0

10.3

10.8

PERFORMANCE

FY15

FY16

FY17E

FY18E

2,705

2,705

2,705

2,705

Reserves & surplus

122,716

128,434

141,784

156,692

EFFICIENCY

Net worth

125,421

131,139

144,489

159,397

Asset turnover (x)

0.6

0.7

0.6

0.6

Borrowing

423,419

416,209

394,379

373,839

Sales/ total assets (x)

0.5

0.5

0.4

0.5

42,515

45,269

45,269

45,269

Working capital/ sales (x)

0.2

0.2

0.2

0.2

Total liabilities

754,370

776,948

755,488

758,713

Receivable days

156.0

142.8

140.0

140.0

Gross fixed assets

583,351

645,000

685,081

716,306

Inventory days

24.7

23.3

26.5

26.6

162.5

176.5

172.3

172.7

Total debt/ equity (x)

3.0

2.7

2.4

2.0

Other non-current liabilities

Less: Depreciation
Net fixed assets
Add: Capital WIP
Total fixed assets
Total Investment
Inventory
Debtors
Cash & bank
Loans & advances

(202,217) (225,981) (248,109) (271,732)

Payable days

381,133

419,019

436,972

444,574

41,676

41,676

20,838

15,629

422,809

460,695

457,810

460,202

Net debt/ equity (x)

2.9

2.6

2.3

2.0

33,381

33,488

33,488

33,488

Current ratio (x)

1.7

1.5

1.5

1.5

Interest cover (x)

1.3

1.6

1.8

2.0

72.8

14.4

11.5

9.9

EV/ EBITDA (x)

8.6

7.3

7.0

6.5

EV/ Net sales (x)

1.8

1.6

1.7

1.6

1.5

1.4

1.3

18,442

18,061

18,383

19,064

146,492

142,895

128,679

133,446

15,009

12,108

15,214

8,557

FINANCIAL STABILITY

VALUATION
PE (x)

51,979

62,935

55,148

57,191

138,090

158,518

141,785

146,711

Net current assets

93,832

77,481

75,639

71,546

PB (x)

1.6

Other non-current assets

66,258

46,767

46,767

46,767

Dividend yield (%)

1.7

1.6

2.5

2.9

754,370

776,948

755,488

758,713

Free cash flow yield (%)

9.5

10.2

31.7

25.8

Current liabilities

Total assets
Source: Company, Axis Capital

Source: Company, Axis Capital

04

25 AUG 2016

Quarterly Update

TATA POWER
POWER UTILITIES

Disclosures:
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Research Team
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E-mail

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Head of Research

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Research Analyst

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Research Analyst

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Research Analyst

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05

25 AUG 2016

Quarterly Update

TATA POWER
POWER UTILITIES

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06