Company Update

June 14, 2016

Rating matrix

Tata Power (TATPOW)

Rating
Target

:
:

Hold
| 79

Target Period
Potential Upside

:
:

12 months
5%

Mega deal but at premium valuations

Whats changed?
Target

Unchanged

EPS FY17E

Unchanged

EPS FY18E
Rating

Unchanged
Changed from Buy to Hold

Quarterly performance
Q4FY16

Q4FY15 YoY (%)

Q3FY16 QoQ (%)

Revenue

9333

8240

13

8952

EBITDA

1913

1962

(3)

2095

(9)

EBITDA (%)
PAT

20

24

(331)

23

(291)

356

(13)

2884

260

37

Key financials
| Crore

FY15

FY16

FY17E

FY18E

Net Sales
EBITDA

34366.9
6940.5

37480.2
9031.2

39642.3
8284.1

41154.6
8617.2

Net Profit

167.8

832.5

1244.1

1371.2

FY15

FY16

FY17E

FY18E
13.3

Valuation summary
P/E

| 75

116.0

21.8

19.0

EV / EBITDA

8.0

5.6

6.1

5.7

P/BV

1.6

1.4

1.3

1.2

RoNW (%)

1.3

6.6

6.9

8.9

RoCE (%)

10.4

14.7

12.6

13.1

Stock data
Particular

Amount

Market Capitalization (| Crore)

Total Debt (FY16) (| Crore)

19473.3
40274.0

Cash & Investments (FY16) (| Crore)

EV (| Crore)

1210.0
58537.3

52 week H/L (|)

Equity capital (| crore)

89.7/55.6
270.48

Face value

| 1.0

Price performance
1M

3M

6M

12M

Tata Power

(14.3)

(12.9)

(14.9)

(28.2)

NTPC

(11.8)

(8.9)

(8.0)

(12.0)

CESC

(9.7)

(16.8)

(24.0)

(34.6)

Tata Power Renewable Energy (TREPL) has entered into a 100% share
purchase agreement with Welspun Renewables to acquire the latters
1140 MW of renewable energy portfolio. Enterprise value (EV) of the deal
works out to | 9250 crore or | 8.1 crore/MW. With the said acquisition
TPREL would become the largest renewable energy company in India
with ~2300 MW of renewable capacity post acquisition. Also, the
consolidated portfolio of Tata Power would cross the 10000 MW mark.
The acquisition is sync with the group philosophy of renewable portfolio
being 30-40% of overall generation portfolio as this deal would inch the
same metric to 28%. In our view, valuations appear on the higher side.
EV/MW of | 8.1 crore/MW is higher than current replacement costs of | 6
crore/MW despite the fact the acquisition brings in quality operational
assets, which have long term PPAs coupled with remunerative tariffs &
associated infrastructure (land & T&D evacuation infra).
Key highlights of acquisitions

The transaction will be closed in two months within which all the
1140 MW of assets will be operationalised
Out of 1140 MW of assets, almost 88% or 994 MW is solar based
capacity while remainder 146 MW is wind based capacity
The weighted average capital costs of the projects range between
| 7 and | 8 crore/MW. Similarly, weighted average feed in tariff of
solar based projects works out to | 8/Kwhr while for wind the
same works out to | 6/Kwhr
The deal also includes extra land in upwards of 500 acres coupled
with ready T&D evacuation infrastructure, which will help future
expansion for TPREL at lower capital costs
All assets have long term PPA (25 years) in place while the assets
have a strong operating track record
Post acquisition, TPREL will have 2344 MW of assets, which will
include 1794 MW of operational assets and 540 MW of projects
under development
About 710 MW or 63% of total assets are housed in four states
like Tamil Nadu (300 MW), Andhra Pradesh (130 MW), Karnataka
(134 MW) and MP (150 MW)
The debt of the operational assets is spread over 15-16 years
Acquisition to increase consolidated debt equity ratio
As per the management, | 5500 crore of debt will be transferred from
WPREL while the remainder | 3750 crore funding will be met from short
to medium term debt instruments. Hence, on an overall basis,
consolidated debt will increase by | 9250 crore to | 49000 crore post the
closure of the deal. The debt equity ratio will move up from 2.2x as of
FY16 to 2.8x post acquisition.

Research Analyst

Higher tariff at | 8/Kwhr does pose risk from discoms

Chirag Shah
shah.chirag@icicisecurities.com

The higher tariff of | 8/Kwhr is backed by long term PPAs agreed by the
discoms. However, the evolving stage of the solar power industry in India
and consequent lowering of tariffs (current competitive bid coming in at
| 5-5.5/Kwhr) and capital costs (| 6 crore/MW) may pose a risk of back
downs from discoms while buying expensive power.

ICICI Securities Ltd | Retail Equity Research

Total 1140 MW can generate 15-16% RoEs in line with management

commentary
Our calculations suggest that at 20% PLF weighted average tariff of
| 7.5/Kwhr the target company can generate RoEs in the range of 15-16%,
in line with the companys philosophy towards organic assets. In our
calculation, we have assumed | 1400 crore as equity infusion from parent
Tata Power towards acquisition, which is equal to the consolidated cash
of Tata Power as of FY16. The remainder portion i.e. | 7850 crore will be
in the form of debt to fund the EV of | 9250 crore.
Exhibit 1: RoE computation of WPREL assets

Operational assets
Gross block
PLF
Generation
EV
Debt
Debt transferred from WPRL
Raised by TPREL in form of equity
Equity infused
Tariff
Revenue
Less: O&M
EBITDA
Depreciation
EBIT
Interest
EBT
Tax
PAT
Equity infused
RoE

Unit
MW

Basis

FY17E
1140
9120
20%
199.7
9250

|8 crore/MW
%
Crore units
| crore
| crore
| crore
| crore

5500
2350

7850

| crore

1400

|/Kwhr
| crore
| crore
| crore
| crore
| crore
| crore
| crore
MAT Rate
| crore

7.5
1498.0
114.0
1384.0
364.8
1019.2
745.8
273.4
54.7
218.7

| crore

| 0.1 cr/MW

9.5% p.a.
20%

1400
15.6%

Source: Company, ICICIdirect.com Research

Outlook & valuation

Though Tata Power will become the largest renewable company in India,
the important monitorable would be whether the company dilutes stake in
TPREL to augment funds for the acquisition or future prospects. Going
ahead, we believe the upcoming CERC order with respect to
compensatory tariff can lead to a rerating of the stock as Tata Power has
accumulated losses of over | 3000 crore related to that. Improving
performances of other subsidiaries augurs well for profitability, going
ahead, coupled with low probability of extraordinary write-offs. We
ascribe a HOLD rating to the stock given the stock has already
appreciated from | 60 levels and the overhang of incremental debt to
fund the Welspun acquisition. This will inch up the debt equity ratio in the
medium term.

ICICI Securities Ltd | Retail Equity Research

Page 2

Details of target asset:

Exhibit 2: Distribution of assets across states
State
Solar Power
Andhra Pradesh
Bihar
Gujarat
Karnataka
Maharashtra
M.P.
Punjab
Rajasthan
Tamil Nadu
Uttar Pradesh
Total

Capacity (MW)
130
44
50
134
73
150
38
71
300
3
994

Wind Power
Rajasthan
Total

146
146

Grand Total

1140

Source: Company, ICICIdirect.com Research

Exhibit 3: Existing portfolio of TPREL

Others
9%

Exhibit 4: Portfolio post acquisition

Others
5%

Solar
16%

Wind
46%

Solar
49%

Wind
75%

Source: Company, ICICIdirect.com, Research

ICICI Securities Ltd | Retail Equity Research

Source: Company, ICICIdirect.com, Research

Page 3

Exhibit 5: Consolidated valuation

Mumbai generation + distribution

Belgaum
Merchant (Trombay & Haldia)

Capacity
1927 MW
81 MW

Status/ Expected CoD

Value No of shares
| crore
(|crore)

Value per
share (|) Valuation Methodology

Operational
Operational
Operational

7264
83
722

270.5
270.5
270.5

27 2x FY16E regulated equity

0.3 FCFE with 13% CoE
2.7 FCFE with 13% CoE

Operational
Operational
Operational

1177
155
108

270.5
270.5
270.5

4 FCFE with 12% CoE

0.6 FCFE with 13% CoE
0.4 FCFE with 13% CoE

2458
899
300

270.5
270.5
270.5

Jojobera existing
IEL
Jojobera expansion

200 MW
Merchant+
20MW PPA
428 MW
120 MW
120 MW

Maithon
Wind Energy
Solar

1050 MW
375 MW
30 MW

Operational
Operational
Operational

Wind Energy further additional

100 MW

50 MW in FY13

300

270.5

9 FCFE with 13% CoE for 74% stake

3 FCFE with 13% CoE
1 At replacement cost of | 7 crore
At replacement cost of | 5 crore/MW since
1 PPAs have not been signed

Operational
Operational
Operational

5
16
129

270.5
270.5
270.5

FCFE with 10% CoE for 51% stake (higher COE

0 due to tariff recovery in installments)
0 FCFE with 12% CoE for 51% stake
0 10x FY13E PAT

NDPL
Tala Transmission
Power Trading

PT Bumi Resources & Mundra UMPP

4000 MW

Dagachu HEP

126 MW

3086

270.5

3x EV/Reserves for Bumi(factoring weak

realisations), positive valuation for Mundra
16 UMPP (post CERC verdict)

5.2

270.5

1.0x Book value for 26% stake

0.0 (in line valuation given for NHPC)

78.1

270.5

0.3 30% holding company discount

Other business
NELCO
SED
Tata BP Solar

2.6
362.4

270.5

1.3 1x FY13E sales

266.96

270.5

1.0 2x investments

84.9

270.5

0.3

234.9

270.5

0.5

Value of investments (Telecom)

TTML
Tata Communication
Target Price

5.0

79

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 4

Financial summary
Profit and loss statement
(Year-end March)
Total operating Income
Growth (%)
Raw Material Expenses
Coal processing Chgs
Cost of Power purchased
Royalty towards coal mining
Other expenses
Total Operating Expenditure
EBITDA
Growth (%)
Depreciation
Interest
Other Income+ excep.
PBT
Others
Total Tax
PAT
Growth (%)
EPS (|)

| Crore
FY15
34,367
(3.6)
9,261.0
2,162.7
7,383.1
1,034.7
7,584.9
27,426.4
6,940
(9.9)
2,174.2
3,699.3
416.7
1,483.7
(289.4)
1,074.9
168
164.8
0.6

FY16
37,480
0.0
8,268.3
2,036.8
9,256.7
939.1
7,948.1
28,449.1
9,031
30.1
2,376.4
3,476.5
79.0
3,257.2
(256.0)
2,168.7
832
433.0
3.1

FY17E
39,642
0.0
10,200.7
2,114.4
9,719.6
939.1
8,384.4
31,358.2
8,284
(8.3)
2,448.2
3,572.6
200.0
2,463.3
(350.0)
869.3
1,244
14.5
4.6

FY18E
41,155
0.0
10,531.1
2,189.0
10,205.5
967.3
8,644.4
32,537.4
8,617
4.0
2,435.6
3,706.7
200.0
2,674.9
(100.0)
1,203.7
1,371
42.7
5.1

Source: Company, ICICIdirect.com Research

Cash flow statement

(Year-end March)
Profit before Tax
Add: Depreciation
(Inc)/dec in Current Assets
Inc/(dec) in CL and Provisions
Others
CF from operating activities
(Inc)/dec in Investments
(Inc)/dec in Fixed Assets
Others
CF from investing activities
Issue/(Buy back) of Equity
Inc/(dec) in loan funds
Dividend paid & dividend tax
Inc/(dec) in Sec. premium
Others
CF from financing activities
Net Cash flow
Opening Cash
Closing Cash

| Crore
FY15
1,483.7
2,174.2
(1,460.3)
579.1
(808.5)
5,981
(60.9)
(3,493.6)
0.0
(3,875)
(25.5)
(171.0)
(512.1)
0.0
(3,620.3)
(2,160)
(53.8)
1,555.0
1,501

FY16
3,257.2
2,376.4
(619.1)
803.1
(2,168.7)
6,502
0.0
(2,500.0)
1.0
(1,850)
0.0
0.0
0.0
1.0
30.6
(5,028)
(376.0)
1,501.3
1,125

FY17E
2,463.3
2,448.2
(1,976.2)
128.1
(869.3)
1,699
0.0
(2,500.0)
2.0
(2,000)
0.0
0.0
0.0
2.0
32.1
808
507.0
1,125.2
1,632

FY18E
2,674.9
2,435.6
(1,129.5)
(222.0)
(1,203.7)
3,850
0.0
(2,500.0)
3.0
(2,500)
0.0
0.0
0.0
3.0
33.7
(506)
844.6
1,632.2
2,477

FY15

FY16

FY17E

FY18E

0.6
8.7
46.4
2.3
5.5

3.1
11.9
50.4
3.3
4.2

4.6
13.7
55.2
4.3
6.0

5.1
14.1
60.6
5.3
9.2

20.2
4.3
1.2
72.7
59.1
55.6

24.1
8.7
2.9
97.5
55.0
58.0

20.9
6.2
3.3
97.5
57.0
56.0

20.9
6.5
3.6
100.0
60.0
52.0

1.3
10.4
10.7

6.6
14.7
15.1

6.9
12.6
13.1

8.9
13.1
13.8

120.9
8.1
1.7
0.6
1.6

22.7
5.7
1.4
0.6
1.5

19.8
6.2
1.3
0.5
1.4

13.9
5.8
1.2
0.5
1.2

5.4
3.0
1.4
0.1

3.6
2.4
1.2
0.1

4.0
2.2
1.4
0.1

3.8
2.0
1.5
0.1

Source: Company, ICICIdirect.com Research

Balance sheet

| Crore

(Year-end March)
Liabilities
Equity Capital
Reserve and Surplus
Total Shareholders funds
Total Debt
Others
Minority Interest / Others
Total Liabilities

FY15

FY16

FY17E

FY18E

270.5
12,271.6
12,542.1
37,204.9
4,678.2
2,492.6
56,918

270.5
13,360.5
13,630.9
32,146.1
4,708.8
2,991.1
53,477

270.5
14,654.5
14,925.0
32,921.9
4,740.9
3,589.3
56,177

270.5
16,125.7
16,396.2
32,382.3
4,774.6
4,307.2
57,860

Assets
Gross Block
Less: Acc Depreciation
Net Block
Capital WIP
Total Fixed Assets
Goodwill on consolidation
Investments
Inventory
Debtors
Loans and Advances
Other Current Assets
Cash
Total Current Assets
Creditors
Other Liabilities
Provisions
Total Current Liabilities
Net Current Assets
Others Assets
Application of Funds

55,306.4
17,558.3
37,748.1
3,650.5
41,398.6
6,991.0
3,338.1
1,844.2
5,564.0
5,345.8
9,460.3
1,500.9
23,715.1
5,235.4
11,597.8
1,691.9
18,525.1
5,190.1
0.0
56,918

57,806.4
19,934.7
37,871.8
2,500.0
40,371.8
6,991.0
3,838.1
2,207.8
5,647.7
5,622.0
9,355.9
1,125.2
23,958.7
6,038.5
13,867.7
1,776.4
21,682.6
2,276.1
0.0
53,477

60,306.4
22,382.8
37,923.6
1,500.0
39,423.6
6,991.0
4,338.1
2,723.8
6,190.7
6,739.2
9,155.9
1,632.2
26,441.8
6,166.6
12,685.5
1,865.3
20,717.4
5,724.4
0.0
56,177

62,806.4
24,818.4
37,988.0
1,000.0
38,988.0
6,991.0
4,838.1
2,885.2
6,765.1
7,407.8
8,880.9
2,476.8
28,415.8
5,944.6
13,169.5
1,958.5
21,072.6
7,343.3
0.0
57,860

Key ratios
(Year-end March)
Per share data (|)
EPS
Cash EPS
BV
DPS
Cash Per Share
Operating Ratios (%)
EBITDA Margin
PBT / Total Operating income
PAT Margin
Inventory days
Debtor days
Creditor days
Return Ratios (%)
RoE
RoCE
RoIC
Valuation Ratios (x)
P/E
EV / EBITDA
EV / Net Sales
Market Cap / Sales
Price to Book Value
Solvency Ratios
Debt/EBITDA
Debt / Equity
Current Ratio
Quick Ratio

Source: Company, ICICIdirect.com Research

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 5

RATING RATIONALE

ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns

ratings to its stocks according to their notional target price vs. current market price and then categorises them
as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional
target price is defined as the analysts' valuation for a stock.
Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;
Buy: >10%/15% for large caps/midcaps, respectively;
Hold: Up to +/-10%;
Sell: -10% or more;

Pankaj Pandey

Head Research

pankaj.pandey@icicisecurities.com

ICICIdirect.com Research Desk,

ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai 400 093
research@icicidirect.com

ICICI Securities Ltd | Retail Equity Research

Page 6

ANALYST CERTIFICATION
We /I, Chirag Shah PGDBM research analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the
subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.

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Page 7