Re: {LONGTERMINVESTORS} Tata Power - Rasons for losses
RAJESH DESAI
True,
When one can not LEAVE has to LIVE with
regards
On May 24, 5:14 pm, Priyanka Joshi <priyankajoshig...@gmail.com>
wrote:
> At this price one cannot sell Tata Power.> On Thu, May 24, 2012 at 5:40 PM, Anish Poojara <anish.pooj...@gmail.com>wrote:
>
>> > On Thu, May 24, 2012 at 5:08 PM, RAJESH DESAI <stockde...@gmail.com>wrote:
>
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> > Thanks. But I guess I will have to be patient for 2-3 years more for this
> > problem to fully settle down and Mundra to start contributing to NP.
> > anish poojara
>
>> >> On Thu, May 24, 2012 at 4:25 PM, Anish Poojara <anish.pooj...@gmail.com>wrote:
> >> The co. is planning to merge its Indonesian coal mining co with the one
> >> owning the Mundra project. This will offset the losses. Govt. will have
> >> increase the tarrifs & as & when this is done the impairment losses can be
> >> reversed.
>
>> >>> On Wed, May 23, 2012 at 5:27 PM, Mihir Desai <desaimihir...@gmail.com>wrote:
> >>> Will such impairment costs repeat every year?
> >>> Is Mundra a write off?
> >>> anish poojara
>
>
> >>>> Tata Power Company reported consolidated net loss of Rs 1087.68 crore
> >>>> in the year ended March 2012 (FY 2012), compared with net profit of Rs
> >>>> 2059.60 crore in the year ended March 2011 (FY 2011). The reason for the
> >>>> reverse turnaround in FY 2012 was because the company made provisions for
> >>>> Mundra project impairment and deferred stripping costs. The company made
> >>>> provision of Rs 1800 crore for impairment for Mundra project and Rs 659.44
> >>>> crore on account of deferred stripping costs.
>
> >>>> Based on assessment of fuel, forex and other operating costs on cash
> >>>> flows for the Mundra project, a total provision of Rs 1800 crore was made
> >>>> in FY 2012 as impairment loss for the year, Tata Power said. Given the
> >>>> volatility of coal prices and forex, the assumptions will be monitored on a
> >>>> periodic basis and necessary adjustments will be made if external
> >>>> conditions relating to the assumptions indicate that such adjustments are
> >>>> appropriate, Tata Power said.
>
> >>>> The company's consolidated revenue jumped 34% to Rs 25868.87 crore in
> >>>> FY 2012 over FY 2011. The company said the surge in revenue reflected
> >>>> strong operational performance and higher coal price realizations.
>
> >>>> The company reported consolidated net loss of Rs 628.75 crore in Q4
> >>>> March 2012, compared with net profit of Rs 625.02 crore in Q4 March 2011.
> >>>> The reason for reverse turnaround in Q4 March 2012 was because of
> >>>> additional provision made for impairment of Rs 815 crore for Mundra
> >>>> project, Tata Power said. The impairment is mainly on account of forex
> >>>> losses incurred due to rupee depreciation, Tata Power said. Consolidated
> >>>> revenue jumped 44% to Rs 7169.85 crore in the Q4 March 2012 over Q4 March
> >>>> 2011.
>
> >>>> Mr. Anil Sardana, Managing Director, Tata Power, said, "During the
> >>>> financial year, all our businesses have registered robust performance. The
> >>>> company crossed a historic milestone of 5000 megawatt (MW) of power
> >>>> generation capacity, reaffirming its position as the largest integrated
> >>>> power company in India. During this period, we commissioned several large
> >>>> projects -- Unit 1 of India's first UMPP in Mundra, Unit 1 of 1050 MW
> >>>> Maithon Power Project and 25 MW solar plant at Mithapur. Tata Power's
> >>>> global footprint has been further augmented through its JV with Exxaro to
> >>>> explore electricity generation opportunities across South Africa, Botswana
> >>>> and Namibia. We are also pleased to share that Cennergi has been announced
> >>>> as preferred bidder for two wind projects of 234 MW -- Amakhala 139 MW and
> >>>> Tsitsikamma 95 MW projects. We look forward to early resolution on imported
> >>>> coal compensation issue for long-term sustenance of power sector. The
> >>>> annual consolidated results reflect non-cash impairment provision for
> >>>> Mundra project and deferred stripping costs. We believe it is prudent to
> >>>> make such provisions."
>
> >>>> --
> >>>> CA Mihir Desai
>
> >> --
> >> CA. Rajesh Desai
>
> --
> With Regards,
>
> Priyanka Joshi
--
CA. Rajesh Desai
RAJESH DESAI
Downgrade cloud on Tata Power
· Ratings agency Moody’s has placed Tata Power Company's (TPC’s) Ba3 corporate family rating on review for a possible downgrade due to material covenant breaches on bank debt associated with the Ultra Mega Power Project at Mundra in Gujarat.
· However, the covenant breaches do not constitute a payment default, went a Moody’s Investor Services statement. The breaches are related to TPC not meeting its agreed maximum debt to equity ratio and minimum debt service coverage ratios.
· Coastal Gujarat Pvt Ltd, subsidiary of Tata Power, is implementing the 4,000 Mw project at Mundra in the Kutch region, based on imported coal. The project value is around Rs 18,000 crore (in excess of $3 billion) or 30 per cent of TPC’s total assets reported in 2011-12. Financial challenges at the project have created considerable strain for TPC, as evidenced by the covenant breaches.
· Moody’s also put the B1 senior unsecured bond rating and Senior Unsecured MTN Program (foreign currency) rating of (P)B1 under review for a downgrade. The review action reflects questions relating to the project’s long-term impact on TPC’s financial profile, given the cost and rate structures.
CA. Rajesh Desai
RAJESH DESAI
Tata Power said profit declined mainly due to lower profit in coal companies owing to lower price realisation and higher cost of production, higher interest and depreciation cost due to commissioning of Mundra and Maithon units and reversal of revenues due to change in effective date of multi-year tariff (MYT) regulations in Mumbai.
On consolidated segment-wise performance for the quarter, revenues from power business has increased by 30% at Rs. 4824.01 crore as compared to Rs. 3720.30 crore in the corresponding quarter last year. Revenue from Coal Business was up by 14% at Rs. 2265.04 crore as compared to Rs. 1990.69 crore in the corresponding period last year. PBIT from Power Business was at Rs. 578.24 crore as against Rs. 627.0 crore in the previous quarter last year, a reduction Rs. 155 crore mainly due to shifting of MYT regime to 2012-13 onwards in Mumbai. PBIT from Coal Business stood at Rs. 257.61 crore as compared to Rs. 750.07 crore reported in the corresponding quarter last year. Profits were lower in Coal Companies due to lower price realization and higher cost of production. Last year's PBIT was after capitalization of Rs. 210.65 crore of deferred stripping costs. From 1st Jan 2012 no capitalization of deferred stripping cost is being done.
Commenting on the Company's performance, Anil Sardana, Managing Director, Tata Power said, "During first quarter of FY13, the Company reported revenue growth of about 20% and profit growth of about 10% which is highly satisfying. All our projects and subsidiaries by and large have performed well. Tata Power's generation capacity crossed 6000 MW with commissioning of 800 MW unit 2 of the Mundra UMPP, reinforcing our position as the largest integrated power company in India. The Company crossed 11000 MWh of generation units at Mithapur Solar plant which is a significant milestone that demonstrates efficiency and state of art technology used at the plant. Our Coal Companies posted lower realization due to global economic slowdown and falling coal prices. By signing the coal supply agreement with PT Antang Gunung Meratus, we have taken proactive steps to ensure imported coal supply for our upcoming power projects to be developed for next 5 years."
During the quarter under review, the company continued its robust operations. Sales volume for the quarter stood at 4227 million units (MUs) in Q1 June 2012 as compared to 3932 MUs in Q1 June 2011. The overall generation was 4259 MUs up 10% as compared to 3889 MUs reported in corresponding quarter last year. Trombay Thermal Power Station generated 2542 MUs as compared to 2445 MUs in the corresponding quarter last year. Hydro Power Stations generated 389 MUs as compared to 362 MUs. Jojobera Thermal Power Station generated 814 MUs as compared to 663 MUs and Haldia reported generation of 227 MUs as compared to 219 MUs in the corresponding quarter last year. Industrial Energy (IEL) reported generation of 457 MUs as compared to 399 MUs. Wind Farms performed well and generated 256 MUs as compared to 154 MUs in the corresponding quarter last year. Solar plant recorded generation of 1 MU as compared to 1 MU in Q1 June 2011.
Tata Power is India's largest integrated power company with a significant international presence. The company has an installed generation capacity of 6099 megawatts (MW) in India and a presence in all the segments of the power sector viz generation (thermal, hydro, solar and wind), transmission, distribution and trading.
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CA. Rajesh Desai
Rajesh Desai
AMBIT -Tata Power (BUY): CERC relief for Tata Power
The Central Electricity Regulatory Commission (CERC) yesterday passed an order allowing a temporary ‘compensatory tariff’ for Tata Power’s imported coal-based project in Mundra. The order is similar to the landmark order that was passed in the case of Adani Power which was also allowed a ‘compensatory tariff’ for its own Mundra project. The CERC in its order has stated that Tata Power has been impacted by the regulatory change in Indonesia, which has led to a substantial increase in the coal cost. (Bhargav Buddhadev, +91 22 3043 3252)--
CA Mihir Desai
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CA. Rajesh Desai
Rajesh Desai
Weaker rupee and weak Mundra for Tata Power
Rupee crisis comes at a time when imported coal-based Mundra project is in enough trouble already
n early 2008, Tata Power tied-up loans worth Rs 17,000 crore for the country's first ultra mega power project in Mundra.
The massive loan to build the 4,000 megawatt power project had also raised money from external commercial borrowings. This was a strategy adopted by many of its peers like Reliance Power, which raised Chinese loans, as well as Adani Power.
Traditionally, power projects which have all their revenues tied-up in rupees only, stayed out of the forex exposures. But some private utilities broke the rule for two reasons. One of them was that many of them including Mundra ordered their equipment from foreign companies. Korean company, Doosan, supplied five units of 800 megawatt super-critical equipment.
The second and the most important reason was the extremely attractive interest rates offered by ECBs.
“There was a cap of 5% interest rate on ECBs. At that time, they were offering loans at 4% interest, while Rupee loans came at 11%,” said Debashish Mishra, senior director at Deloitte Touche Tomatsu.
Good times & ECBs
All this while Rupee was trading at around Rs 45 to a Dollar. Added to that, the currency had been trading at around Rs 45-47 band for the seven years since. But now, the company is facing a crisis with Rupee hitting 68 to a Dollar, as Mundra faces a massive Dollar loan liability of $1.4 billion.
Till June last year, Tata Power was sitting comfortably on these loans. The reason being that they had hedged their liabilities. When asked if they had hedged for Rupee at around 55-56 to Dollar in an interview then, the managing director Anil Sardana, had happily answered, “Yes, we are hedged,” he answered.
That confidence, however, is lacking now. At the company's annual general meeting recently, Sardana was not as confident. Their 'safe' hedging strategy is also failing them.
“The only option left is to go for more and longer hedges, against headwinds. Even if the company were to hedge all its forex exposures, costs of hedging will be phenomenal. The way it is going, there is no liquidity with the banks that is possible to hedge it with,” he said.
The cost of hedging, Mishra said, comes to around 6-6.5%. Sardana says that if they go ahead and hedge at high costs, it will reflect on the tariffs.
“It is to be seen whether consumers who will ultimately suffer will be able to absorb around 50 paise increase in tariffs,” he said. State electricity boards have been raising tariffs for consumers after they themselves landed in a financial trouble. But, they might choose not to buy expensive power, as more costs pile on.
Now, even their former expensive hedges have failed. The Dollar loan could have been at Rs 6,300 crore if Rupee were at around 45 to a Dollar. At the current rates, however, it would convert to as high as Rs 9,500 crore.
“Debt servicing at this rate will be a huge problem,” admitted Sardana.
Mundra in loss realm
This unprecedented crisis comes at a time when the imported coal-based Mundra project is in enough trouble already. From a flagship project during the construction phase, Mundra has become an asset that is fast eroding the company's networth. The outlook suggests huge increase in interest costs due to forex fluctuations, as the plant is making losses as it operates due to increased fuel costs because of changes in Indonesian laws.
The new law, that came in two years back, compelled the company to price its imported coal at international prices. It toppled the company's well-planned strategy to control its fuel costs. It had bought stakes in three coal mines that belong to Indonesia, hoping to stabelise coal costs. Fuel costs account to around 70% of the total costs of producing power.
This move has already impaired the asset twice. For the quarter ending January, 2013, Tata Power made a Rs 600 crore provision for possible losses from Mundra on its balance sheet. This was the second impairment which the company took, as it was impaired Rs 1,800 crore in the financial year ending 2011-12.
This problem, however, looks close to being solved. The company's plea with the central power regulator, CERC, received a positive nod. The regulator had appointed a committee to decide the extent of tariff hike, which is known to be fixed at 56-58 paise per unit, as per reports.
“This implies a jump in tariff of around 24% from the existing tariff of Rs 2.45 per unit. Whilst this will still not take RoE to 14% (cost of equity assumed for this project), it will definitely turn Mundra profitable and lead to positive stock reaction as the implied ROE on this new tariff is around 7%,” said a report by Ambit Capital.
Stock slips on Rupee worries
Tata Power's stock has corrected by 24% in the last one year. It has been under-performing the volatile Sensex by 27%, mostly due to the overhang of various issues in the power sector, and also its specific problems relating to Mundra. But the real worry for the street seems to come from the Rupee.
Earlier this month, the company's stock hit a four year low, falling by 18% on the day its announced a Rs 114,7 crore loss for the first quarter. This was on the back of a forex loss of Rs 292.7 crore on realignment of liabilities due to weakening of Rupee, and higher finance cost of Mundra.
“Measures now have to be taken at the country level,” Sardana said when asked about his comments on the Rupee crisis. It is over to the government now, yet again.
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CA. Rajesh Desai
Rajesh Desai
The company also made exceptional expenditure at its coal mines in Indonesia, which went up by Rs 152 crore. The total other expenses swelled 29 per cent. “Exceptional expenditures were made towards settlement of mining rates, mine rehabilitation costs, forex losses and tax demands in Arutmin coal mines,” the company said in a release.
In the quarter under review, Tata Power’s revenues decreased by four per cent to Rs 8,700 crore compared to Rs 9,039 crore in the year-ago quarter. “This is driven by lower fuel and power purchase cost in Mumbai (distribution) operations and Delhi distribution business, which is offset by an increase in revenue in Mundra and Maithon Plants due to full operation and higher sales in Tata Power Solar Systems,” the company said in a statement.
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CA. Rajesh Desai