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Friday, April 11, 2008

Tata Power: Full of energy

The huge anticipated growth in demand for electricity and the government’s ambitious investment target for the power sector augur well for players in this space.

Currently, India’s peak energy shortage stands at 9.3% and peak demand shortage is 13.9%. The 17th Electric Power Survey report estimates India’s peak demand to more than double to 218.2 GW in 2017 from 100.4 GW in 2007. The survey also anticipates the country’s energy requirement to increase by 142.9% to 1,392 billion units over the same period. India plans to add around 78.6 GW capacity by 2012 and a further 92 GW by 2017 to cater to the bourgeoning demand, which calls for huge investments.

All this puts players in the space in a sweet spot.

One such player is Tata Power, which is setting up a 4,000 MW greenfield coal-fired plant (India’s first Ultra Mega Power Project) near Mundra Port.

The company expects to commission the first 800 mw unit in mid-2011 and one new unit at intervals of four months each thereafter. The International Finance Corporation recently agreed to lend $450 million (Rs 1,800 crore) with a 20-year tenor for the project.

To meet to the coal requirement for its projects, the company had bought a 30% stake in two Indonesian coal companies and an associated coal trading company, all promoted by PT Bumi Resources Tbk, Indonesia, for around Rs 5,000 crore last year.

Bumi Resources recently posted robust numbers for CY2007 — revenues were up 22.3% YoY at $2.3 billion, profit before tax up 98.4% at $383 million and core net income after minority interest up 66.8% $317 million.

Bumi Resources utilised the funds received from Tata Power to pay off its long-term debt and hence is in a comfortable position to expand its mining capabilities.

Tata Power’s stock has outperformed the Sensex and appreciated by 134.5% against the benchmark’s 19% rise in the past one year. At Rs 1,199.65, it trades at 31.4 times its estimated earnings for 2009. Though valuations appear expensive at these levels, analysts are positive on this stock. Analysts Satyam Agarwal and Nalin Bhatt of Motilal Oswal have valued the stock at Rs 1,365 on a sum-of-the-parts basis.

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