Resolution of compensatory tariff issue key for Tata Power, Adani Power: analysts
Early resolution of compensatory tariff issues of their Mundra plants is important for the balance sheets of Tata Power and Adani Power, say analysts.
Both the issues are pending before the Appellate Tribunal for Electricity (APTEL).
As far as Tata Power’s 4,000 MW Mundra UMPP is concerned, the company and analysts believe that tariff hike is the key variable for the stock. However, given the delay in APTEL proceedings and potential for a further appeal to the Supreme Court, the tariff increase may be further delayed.
The Supreme Court (SC) has stayed APTEL’s order to allow a compensatory tariff hike for Mundra UMPP. APTEL had allowed Rs 0.36 per unit tariff hike for Mundra UMPP project to compensate for losses incurred due to a hike in Indonesian coal prices.
At the annual general meeting, responding to the concerns expressed by shareholders, Tata Power chairman Cyrus Mistry hoped the compensatory tariff issue will be soon resolved.
He further said that in the absence of compensatory tariff the company continues to make losses at Mundra UMPP.
The loss at Mundra declined to Rs 84 crore in Q1 FY16 against Rs 305 crore y-o-y and forex loss came in at Rs 52.9 crore against Rs 136.8 crore y-o-y.
ICICI Direct in its report said due to unforeseen changes in Indonesian law along with the tariff structure of the Power Purchase Agreement (PPA), Coastal Gujarat Power Limited (CGPL) is not able to recover the full cost of fuel through its tariff for Mundra UMPP.
“Any further delay in tariff realisation for the Mundra project will continue to significantly impact the feasibility of the project. Losses at Mundra have already eroded Rs 3,985 crore of the company’s net worth in the past three years. Furthermore, a delay in final verdict will negatively impact investor sentiments,” the report added.
JM Financial in its analysis also observed that tariff hike remains the key variable for the Tata Power stock.
“However given the delay in Appellate APTEL proceedings and potential for a further appeal to Supreme Court we find this trigger to be further delayed. We factor only 50% of required tariff hike, defer the benefit to FY17 and revise coal price assumptions to $47/T (coal sales) and $52/T (Mundra cost).”
According to JM Financial, with depressed coal prices in the medium term and meagre capex, Tata Power stock lacks triggers, barring the UMPP tariff hike.
The matter pending with the APTEL should see some movement as a fresh member was recently appointed to its board replacing retirements.
In case of Adani Power, high fuel cost is a big negative for its 4,620 MW Mundra power project.
According to IDFC Securities, tariff hikes for Mundra power project would address concerns over the company’s ability to service debt. The company has booked Rs 230 crore worth compensatory tariff granted by CERC for the Mundra project.
The case is currently being heard at APTEL. The hearing has been completed and APTEL’s judgement is expected in couple of months, notes IDFC Securities.
