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Submitted By
Aditya Ganguli
018/46
Ankit Sukhija
052/46
Chirag Jain 097/46
Company Background
Tata Power Company Limited (TPC), India's largest integrated Electric Power
Utility in private sector with a reputation for reliability, incorporated in the year
1919 at Mumbai. TPC pioneered the generation of electricity in India nine
decades ago. The core business of Tata Power Company is to generate, transmit
and distribute electricity. The Company operates in two business segments:
Power and Other. The Power segment is engaged in generation, transmission
and distribution of electricity. The other segment deals with electronic
equipment, project consultancy.
Tata Power acquired 100% equity stake in Tata Power Trading Co. Pvt Ltd in the
year 2004. The Christened Tata Power Trading Company was incorporated in the
year as a subsidiary of the company. The company received CII EXIM Bank Award
2005 for 'Certificate for Strong Commitment to Excel'. During the period of 2006,
the company joined hands with Siemens. The company signed a joint venture
agreement with Tata Steel to set up a Captive Power plants in Chattisgarh,
Orissa and Jharkhand. The company received seven licenses from the Gvt of
India, Ministry of Commerce and Industry, Dept of Industrial Policy & Promotion
for its Strategic Electronics Division (Tata Power SED).
In the year 2007, TPC has signed a MoU with the Government of Chhattisgarh
for the setting up of a 1000 MW coal fired mega power plant in the State. The
company has roped in Korea-based Doosan Heavy Industries and Construction
Ltd for supercritical boilers for its Mundra ultra mega power project. The
acquisition of Coastal Gujarat Power Ltd was med by the company and a Special
Purpose Vehicle (SPV) formed for Mundra Ultra Mega Power Project (UMPP).
Tata Power is surging ahead, lighting up lives through its activities from its
inception. The challenge of fulfilling the ever growing needs of power has been
met by Tata Power through efficient generation, transmission, distribution and
constant upgrading of its technology in every aspect.
The total power generation in the country during FY09 was 723.55 Billion Units
(BUs) as against the target of 774.34 BUs, about 6% below target. The installed
generation capacity in the country, as on 31st
March, 2009 was 147,965 MW. The primary source of fuel for power generation
in India is still coal.
To achieve the Eleventh Plan targets, India needs over 65.86 GW of generation
capacity addition by 2012. If this is to be achieved, it would need multiple
initiatives in generation, transmission and distribution. The steady rise in
demand for power as a result of economic growth is expected to present the
Company with a number of opportunities.
To expedite the target growth of power generation, the Government of India has
identified the development of Ultra Mega Power Projects (UMPPs) as a thrust
area. The central idea of the UMPP is to set up generation capacity on a large
scale and reduce the development time of the project with the Government
arranging land and all key approvals for the project. So far, four such projects of
4,000 MW capacities each have been awarded and more are planned. The
Company has won the Mundra UMPP.
The State Electricity Boards (SEBs) are main agencies for the generation and
supply of electricity. Private investments in the Power Sector have been allowed
since 1991, and therefore there is increased participation of private and global
players.
Though 82.4% of villages are electrified, less than 60% of households consume
electricity. Thus the per capita consumption of electricity is the lowest in India.
Industry and Agriculture are the two main sectors that consume power. But the
power sector in India faces many roadblocks like inefficient distribution systems,
low capacity utilization and poor maintenance.
India's peak power demand grew by 3.8% in April 2009, but the pace of growth
accelerated to 4.1% in May 2009 and to 6.5% in June 2009. To address the rising
demand and sluggish capacity additions, the government indicated that it has
initiated coordinated operation and maintenance of hydro, thermal, nuclear and
gas based power stations to optimally utilize the existing generation capacity.
Further, it encourages use of liquid fuel in respect of unutilized capacity of gas-
based stations. In addition, the ministry is tapping surplus power from captive
power plants. Also, to bridge the gap between requirement of coal and its
availability from the domestic sources, coal imports are made.
The all-India power requirement was 111066 million units (MU) as against the
availability of 95722 MU, which resulted in shortage of 15344 MU or recorded
13.8% deficit in June 2009.
All India power capacity addition target was 3041.50 MW in June 2009, as against
which the country added mere 931.50 MW. Thermal capacity addition was
892.50 MW against 2991.50 MW planned while and hydro capacity addition was
39 MW against 50 MW targeted capacity for the month.
Union Budget 2009-10 has been mildly positive for the power sector. The budget
has provided for extension of sunset clause for tax holiday under section 80-IA of
the Income tax act available for power generating unit as well as transmission
and distribution companies upto March 31, 2011.
Given the fact of extension of benefits upto March 31, 2011 that is the peak
period where significantly large planned generation capacity is scheduled to
commence operation is a welcome measure for the power sector. However the
budget has not provided for other core demands of the industry such as
refinancing of existing rupee loans ECB should be allowed for infrastructure
sector as well as withholding tax exemption etc. Though increase in MAT is to
affect the cash flow of the companies especially the infra developers, on overall
basis the Union Budget 2009-10 is a positive one for the power sector.
FUNDS EMPLOYED:
APPLICATION OF FUNDS :
INCOME :
EXPENDITURE :
Profit before Tax and statutory 11166.8 9701.2 5860.1 7474.5 7587.9
appropriations
Net Cash from Operating Activities 6486.1 112625 4367 2968.6 4440.9
Net Inc/(Dec) in Cash and Cash Equivalent 168 -9740.1 286.6 -124.4 9345.9
(a) Depreciation/Amortisation:
(i) Depreciation for the year in respect of assets relating to the electricity
business of the Company as Licensee has been provided on straight line method
in terms of the repealed Electricity (Supply) Act, 1948
(ii) Depreciation for the year in respect of assets relating to the electricity
business of the Company as other than a Licensee has been provided on straight
line method.
(iv) Assets costing less than Rs.5000/- are depreciated at the rate of 100%.
(b) Investments:
Long term investments are carried at cost, less provision for diminution other
than temporary, if any, in the value of such investments. Current investments
are carried at lower of cost and fair value.
(c) Inventories:
Inventories of stores, spare parts, fuel and loose tools are valued at or below
cost. Cost is ascertained on weighted average basis. Work-in-progress and
property under development are valued at lower of cost and net realisable value.
Intangible assets are recognized only if it is probable that the future economic
benefits that are attributable to the asset will flow to the Company and the cost
of the asset can be measured reliably.
Anticipated product warranty costs for the period of warranty are provided for in
the year of sale. Other warranty obligations are accounted for as and when
claims are admitted.
(i) Revenue from Power Supply and Transmission Charges are accounted for on
the basis of billings to consumers/State Transmission Utility and inclusive of Fuel
Adjustment Charges and includes unbilled revenues accrued up to the end of the
accounting year.
(iii) Delayed payment charges and interest on delayed payments for power
supply are recognised, on grounds of prudence, as and when recovered.
Provisions (excluding retirement benefits) are not discounted to its present value
and are determined based on best estimate required to settle the obligation at
the Balance Sheet date. These are reviewed at each Balance Sheet date and
adjusted to reflect the current best estimates. Contingent Liabilities are not
recognised in the financial statements. A Contingent Asset is neither recognised
nor disclosed in the financial statements.
Opening Cash balance is at an all time low for the year 2008-09. This is
2.86% of last year’s figure.
Net Cash from operating activities are also 57% of last year’s values. But
the value is a little higher than the average value over the last 5 years
(5870 million).
Net profit before tax has started showing an uptrend in the last two years
after falling continuously for 2 years. The value has risen by 15% as
compared to 2007-08
Net Interest paid has shown a huge rise over the last year. Overall the net
Interest for 2008-09 is more than the aggregate interest for 2004-2008. In
comparison over the last year, the net Interest paid has risen by more
than 204%
There has been steady and increasing investment in fixed assets. This
highlights that the company is growing organically. The amount invested
in purchase of fixed assets has risen by 23.76% as compared to last year.
This is one of the biggest sources of outflow of cash for the year.
Investing Activities have been the major source of outflow of cash. The
cash inflow has been provided by operating and financing activities
contributing equivalent of 29.21% and 71.54% (of Investing outflow)
respectively. Long Term borrowings are the major source of financing
inflow (99.86%)
In the last two years, the cash & cash equivalents closing balance has
been very low as compared to the previous years. Although it rose by
58.53% in the year 2008-09 the value is still merely 4.5% of 2007-08
figures.
During FY09, the total income at Rs. 78685.8 million was higher by
22.68% as compared to Rs. 64137.6 million in the previous year.
Other income of Rs. 6323.5 million (previous year Rs. 4978.5 million),
included in the total income, is higher predominantly on account of higher
dividend received and gain on exchange (net) during the year.
Operating income at Rs. 72362.3 million for the year was higher by
22.32% as compared to Rs. 59159.1 million in the previous year. This is
higher mainly owing to new tariff approved by the Regulator in Mumbai
Licensed Area, additional power generated from new plants commissioned
during the year, such as Haldia Power Plant and new wind farms and
higher volume sold in Jojobera and Belgaum in the current year.
The cost of power purchased was lower at Rs. 4935.0 million compared to
Rs. 5488.7 million during the previous year mainly due to higher capacity
allocation to Tata Power-Distribution in Mumbai Licensed Area coupled
with the fact that during the previous year, the Company purchased power
on behalf of all licensees as directed by MERC. The increase in the fuel
cost from Rs. 37149.9 million to Rs. 48134.7 million is mainly due to steep
increase in prices domestically and internationally.
Other operating expenses were higher at Rs. 7883.2 million in FY09 (Rs.
7154.1 million in the previous year). The increase is attributable to the
existing units at the beginning of the year and the new units
commissioned during the year on account of higher employee costs,
higher repairs and maintenance cost and higher transmission charges (as
per MERC order).
Depreciation was higher at Rs. 3288.5 million in FY09 (Rs. 2905.0 million
in the previous year) mainly on account of commissioning during the year
of Trombay 250 MW Unit 8 Power Plant, Captive coal berth, Haldia Power
Plant, new wind farms and other assets.
Interest and finance charges were higher at Rs. 3277.6 million (Rs. 1738.7
million in the previous year) mainly on account of higher capitalisation,
increased borrowings and reset of interest at a higher rate.
Tax was higher at Rs. 1944.8 million (Rs.1002.2 million in the previous
year) mainly on account of higher profit before tax during the year and
higher deferred tax on account of new wind capitalisation.
Thus, the Company reported the highest ever PAT of Rs. 9222.0 million, as
against Rs. 8699.0 million for the previous year, a growth of 6%, the
highest so far.
Net Profit after Tax and Statutory Appropriations stood at Rs. 9675.0
million as against Rs. 8113.1 million for the previous year, an increase of
19.25%.
During the year, the net addition of Rs. 25036.1 million to the gross block
was mainly on account of capitalisation of Trombay 250 MW Unit 8 Power
Plant, Captive coal berth, Haldia Power Plant and new wind farms. The net
current assets as on 31st March, 2009 were higher at Rs. 26098.2 million
as compared to Rs. 20362.0 million in the previous year.
Net worth of the Company of Rs. 71851.6 million as at 31st March, 2009
was higher by Rs. 8223.4 million as compared to previous year primarily
on account of retained profits and increase in Capital Reserve due to
forfeiture of initial amount paid on allotment of Convertible Warrants to
Tata Sons Limited.
Dividend recommended at Rs. 11.50 per share, the highest ever so far.
Higher dividend received during the year and gain on exchange (net)
resulted in higher other income of Rs. 6323.5 million (previous year Rs.
4978.5 million).
Profit Before Interest And Tax 13.41 11.90 7.79 10.38 10.63
Margin (%)
Operating Profit margin has taken a hit over the years. The company
average for the last 5 years stands at 17.37%. The current year
performance is lower than last year and considerably lesser than the
company average.
The firm has been able to maintain the gross margins above last year
levels, but it has substantially decreased over the last five years.
ROCE 14 13 12 12 11
Inventory turnover ratio has decreased from last year, but is above the
average over the five years. This is higher than the industry average of
14.2.
Fixed Asset turnover ratio has been consistently decreasing over the past
5 years (44.44% overall), but this is also due to the fact that the company
is rapidly adding assets which are yet to be utilized. The net block,
including capital work-in-progress has increased by 27% over the year.
The ratio is still much higher than the industry average of 0.47 and hence
it shows the superiority of the firm over many others.
Debtors turnover ratio has improved considerably over the last year (18%
rise), but it is much lower than the 2004-05 figures. But the value is
considerably better than the industry average of 4.65.
Long Term Debt Equity Ratio 0.55 0.49 0.51 0.34 0.50
Interest Coverage ratio has shown a steady decline over the past few
years, but it is still higher than the industry average in India (2.96). A
major reason for the decline has been the increasing interest charges for
the company. But still the company is in a good position to service the
interests on its loans. Also since the company is planning to borrow more
long term loans in future for expansion, the interest charges are bound to
increase.
Debt equity ratio (long term as well as total) had decreased in 2007-08
but this year it has come back to 2006-07 levels. The industry average
stands at 0.75 for long term debt ratio.
Both current ratio as well as quick ratio is much higher than 1. This
signifies that the company may have a good liquidity, and cash inflow
precedes cash outflow. But this also shows that a part of current assets is
being financed from long-term sources. Such assets will mature earlier
than the maturity of long term funds. But the net cash and cash
equivalents is a very small component of the current assets of the
company for 2008-09.
Other
Income 1404 368.2 2625 872 1884.3 460 3107.2 1075.8
Provision(Ta
x) 320.2 -13.1 318 762.9 467.8 109.2 604.9 1333.4
Paid-up
Equity 2078.1 2181 2214.1 2208.7 2214.1 2214.1 2214.1 2220.3
In Q3FY09, Tata Power reported a topline of Rs. 17790 million, up 25% y-o-
y. This was primarily due to an increase of about 21.7% in the sale price
per unit of electricity due to higher fuel and power purchase costs y-o-y.
On a q-o-q basis, net sales were down 9%. Lower-than-estimated fuel price
increases and power purchases resulted in lower tariffs (effective) during
the quarter in the Mumbai licence area. There was a 17.6% fall in the price
per unit of electricity sold. Due to a delay in the commissioning of
generation assets (at Trombay and Jamshedpur) and a planned shutdown
of unit 7 at Trombay, the number of units sold by Tata Power increased
only marginally in Q3FY09. The company’s hydro power station recorded
higher generation of 39 million units, up by 14.98%. Belgaum Power
Station also reported increase in generation to 129 million units due to
higher demand by KPTCL as Karnataka had a poor monsoon.
Part of the reason for the fall in realisation in the quarter, apart from the
fall in fuel costs, is that the proportion of sales in outside the license area
is up (that is sold at a lower rate) this quarter.
Other income includes Rs. 209 million of forex gain on the net foreign
exchange asset exposure, which has helped boost the bottom-line.
Other income was down 75% q-o-q. Q2FY09 witnessed a significant jump
in other income on account of receipt of Rs. 75 million in dividends from
its subsidiaries and exchange gain of Rs. 767 million.
Increase in cost of fuel, staff cost and other expenditure (higher repair and
maintenance works and a one-off additional business development
expense cumulatively amounting to about Rs. 170 million) caused the
operating margins to dip.
On a y-o-y basis, Expenditure increased 25% owing to staff cost that
jumped 72% and high Fuel and power purchase costs.
Interest costs jumped 146.8% y-o-y and 39.7% q-o-q to Rs. 951.5 million.
Net interest costs increased y-o-y due to:
Interest expense of Rs. 325.3 million due to debt rose for funding
the equity contribution in project SPVs
Interest expenses of Rs. 63.4 million on the recently commissioned
power plant at Haldia and windmills
Interest resets of Rs. 64.1 million (Rs. 46.6 million is recoverable
through tariffs).
Fall in operating margins, higher interest costs and tax outgo resulted in a
42% fall in net profit to Rs. 1151 million y-o-y. Also, the results are not
strictly comparable on a y-o-y basis due to the change in accounting policy
wherein regulatory adjustments are being made on a quarterly basis
compared to the previous policy of annual adjustment.
On a like-to-like comparison, Tata Power’s PAT for Q3FY08 would have
been lower by Rs. 650 million translating into a 13% fall in profitability in
Q3FY09 versus reported 42%.
Tata Power reported total income of Rs. 21232 million in Q1FY10, up 0.5%
y-o-y and 18.9% q-o-q. Operating margins increased due to the inclusion
of Rs. 2324 million as part of revenue which pertains to previous years due
to MERC tariff orders and judgment of ATE received during this financial
year. Excluding the impact of this, margins increased to 20.6% on the
back of lower cost of fuel and lower cost of power purchased.
In Q1FY10, Tata Power reported a topline of Rs. 20156.2 million, down
0.5% y-o-y and up 36.8% q-o-q. This includes an amount of Rs. 2324
million pertaining to previous years. Thus, based on a like by like
comparison, revenue in Q1FY10 is at Rs. 1783 million, lower by 12% y-o-y.
This fall is mainly explained by a decrease in fuel cost and thus a
corresponding decrease in the price of power per unit sold.
On a q-o-q basis, the increase in revenue is higher due to the Rs. 2320
million of one-time adjustment to revenue, an increase in the number of
units sold and a marginal increase in the selling price per unit sold.
Other income increased 23% y-o-y and was down 65.4% q-o-q at Rs.
1075.8 million. This includes forex gain of Rs. 243.4 million in Q1FY10
compared to forex gain of Rs. 388.9 million in Q1FY09 as well as dividend
on investments. On a q-o-q basis, other income is down because Q4FY09
contains net profit of Rs. 2557.8 million from sale of long term
investments (including sale of stake in Tata Teleservices).
Overall, PBT improved due to lower fuel costs and decrease in cost of
power purchased. The fall in power purchased was due to lower demand
from the MLA distributors and third party sales are no longer to be routed
via Tata Power. Fuel cost are lower partly due to the lower cost of coal,
gas and oil compared to the previous year and partly due to the shutdown
of Unit 4 at Trombay which was based on high cost fuel oil, now replaced
by Unit 8 (based on imported coal). Operating profit was also boosted due
to higher realizations from merchant power sales.
Interest cost jumped sharply by 125.6% y-o-y and 30.2% q-o-q to Rs. 1177
million during the quarter due to commissioning of new units and a sharp
increase in borrowings in order to fund the company’s capex plans and
investments in SPVs, as also a general increase in borrowing costs.
Tata Power reported a PAT of Rs. 3770.8 million, up 97.8% y-o-y and up
6.9% q-o-q buoyed by higher generation, lower fuel costs, receipt of
previous year revenue and impact of FY09 capacity expansion. However,
on a y-o-y basis adjusting for the one time item of Rs. 2320 million, PAT
increased by 22.7% to about Rs. 2330 million.
Competitor Analysis
The two main competitors of Tata Power are National Thermal Power Corporation
(NTPC) and Reliance Infrastructure.
Liquidity
Tata power maintains a healthy liquidity of above 1.5 all through the years given.
In the current year, reliance infrastructure is showing a poor liquidity position of
0.75 due to heavy investments in Sasan Ultra Mega Power project and other
smaller projects in the pipeline.NTPC is enjoying a healthy liquidity position in all
the years.
It is instructive to note that even though Tata Power experienced negative sales
growth, it enjoys the highest P/B value among its competitors. This is because
the investors value the company’s assets at much higher rates than the balance
sheet.
In addition, Tata Power also enjoys the highest P/E multiple among its
competitors. The reasons for this are as under:
1. Tata power is soon going to bring on-stream the Mundra UMPP (Ultra Mega
Power Project) which will generate substantial revenues.
2. The government via the Electricity Act 2007 has already opened up the
market for power generation. It now plans to allow private players in the
market for power distribution as well nationally. This is where Tata power
can leverage its past experience of distribution(North Delhi Power Ltd) and
expand at a fast clip
CAPEX
CAPEX
DIVIDEND
Reliance has the lowest capital expenditure among its competitors and a
lower dividend payout than Tata Power. Management of Reliance seems to be
saving up funds for future capital expenditures. Tata Power on the other hand
is aggressively spending on capital acquisition and giving handsome dividend
payouts as well. A healthy financial position of the company is ensuring this
combination of strategies. NTPC due to its sheer size has the highest capital
expenditure which has jumped 57% over the last year but giving a low
dividend yield.
Additionally Tata Power’s efficiency is steadily falling from its peak of 2007. It
may be due to operational adjustments but it needs to be more than 1 to have
parity with Reliance Infrastructure.
CERC has approved Tariff Norms and Regulations for the period FY09 – 14
pertaining to power generation and transmission utilities. This will have a
significant impact on the performance of the company. The data below is
an estimate by Tata Power on the impact of the new norms on its
financials
The company is on a massive expansion drive and the expansion plan till Mar
2012 incorporates using 23.3% own funds and the rest amount would be
gathered through external loans.
New Generation Projects
Overall the company projects are moving on smoothly. However the cash
flows can create some concerns for the corporate growth plans. Also the
company is using supercritical technology for its Mundra UMPP which is a
first-of-its-type in the country. Any problem regarding stabilization of
these units could be a major risk for the company. Effect of international
fuel price variation would pose an additional pressure on earnings and
thus affect valuation estimates. Also, equipment ordered from abroad and
loans taken in foreign currency for various projects could lead to
exchange loss / gain.
REFERENCES