Advantage Tata Power, pain for NTPC

Tata Power surges 5%; NTPC slumps to five-year low

Power stocks reacted in a mixed way at the bourses on Monday, on the back of  separate orders by the Central Electricity Regulatory Commission (CERC). While the regulator upheld its earlier order of a bailout package to Tata Power for the electricity generated from its imported coal-based Mundra plant in Gujarat, it also announced its final rate norms for FY15-19 that have further tightened the operating norms for power generating companies. The S&P BSE Power index tripped 1.5 per cent as compared to a 0.5 per cent rise in the benchmark indices, the S&P BSE Sensex and the CNX Nifty.

For Tata Power, analysts suggest the bailout package will result in electricity rates rising 52 paise a unit for the current financial year across Gujarat, Maharashtra, Haryana, Punjab and Rajasthan. And, this will mean higher earnings for the company and better valuations for its stock.

“The increase in tariff (rate) is ahead of market estimates, which was expecting a 22-30 paise rate rise. However, it is lower than the 67-paise rise petitioned by Tata Power. The  increase may prevent the project from turning into a non-performing asset (NPA). We continue to be positive on the stock and recommend ‘Buy’ with an enhanced price of Rs 88 a share,” said Sanjeev Zarbade, vice-president, private client group research at Kotak Securities.

Shankar K and Santosh Hiredesai of Edelweiss Research believe the current order pertaining to Tata Power could get challenged/contested at the higher judicial bodies but they are not worried on this count. “We are of the view that a stay on the CERC order is not likely. Hence, we upgrade to ‘Buy’ and maintain the ‘sector performer’ rating with a revised target price of Rs 99 a share,” they suggest. However, some analysts are still cautious on the sector as a lot of clarity is required. While state governments are likely to contest CERC’s rate rise order for Tata Power, availability of coal among others still remains an issue.





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