Tata Power: Tariff Hike – A Big Relief

tata power

Tata Group-owned power generating firm the Tata Power has received a big relief from the state governments where it’s in operation.

The state government of Punjab & Rajasthan have agreed to Tata Power’s demand and have asked distribution companies or the Discoms to revise the tariff plan for Tata Power Mundra Unit.

The Punjab government has approved the tariff plan recommended by a high-level committee which is now approved by the state cabinet.

Revised tariff is applicable for all five state Gujrat, Maharashtra, Punjab, Rajasthan and Haryana from 1st April 2018.

The Gujarat government has already directed it’s power distribution company to raise the tariff.

Give the effective date of approval in tariff hike, the power supplier to Mumbai, Delhi, and other big cities will see a big gain in its bottom line. Punjab state due itself will add Rs 641 crore to its operating profit or Ebitda level.

Total due from all five states is around Ra.2,100 crore. Meanwhile, the company looks to quicken its deleveraging effort and resolution for the Mundra unit that continues to add uncertainty.

However, the regular progress on renewable commissioning and acquisition of distressed power plants provide hope. Tata Power is also looking to sell a stake in its renewable energy portfolio to global investors through an infrastructure investment trust (InvIT

Tata Power is a pioneer in India’s power sector with a presence in all spheres of the power industry, encompassing generation, transmission, trading, and distribution.

The company, in the past, has proved its expertise in project execution. It has an installed capacity of 10GW plus and has a 30% stake in two coal mines of Bumi Resources with proven reserves of 1.9bt.

Further, the management has stated its intentions to simplify its various unrelated businesses and intention to divest in six different businesses which could prune debt/equity from 2.4x to 2.0x over the next few quarters.

The renewable bet has been playing well with the business contributing sizeably to the profits.

The company has also fully commissioned two key projects at Mundra- 4,000MW and Maithon – 1,050MW. Dynamics of the Indian electricity market have undergone a sea change due to higher imported coal prices, weak customer finances, changing fiscal norms at coal exporting countries and now, a depreciating INR.

Net we believe that the tariff hike is a big positive and expect profitability and cash flows to improve from here on.

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