Tata Power –Buy- Anand Rathi
We initiate coverage on Tata Power with a Buy rating and a target price of Rs1,505. It is on track to add 5 GW by FY13. Tata Power is one of our top picks in the sector, given its proven execution record, adequate fuel linkages, strong financials and long-term off-take arrangements.
Tata Power is well on its way to add 5 GW (Mundra and Maithon) by FY13. Its integrated operations along the value chain and strong expertise provide assurance regarding execution. Another 7 GW is planned, likely to pick up pace as more milestones are achieved.
The company is well placed regarding fuel: it has coal-linkages, captive coal blocks and equity stakes in Indonesian mines. A major portion of the present generating capacity and that under construction have long-term off-take purchase agreements.
For FY10-12, Tata Power has a capital expenditure of Rs236 billion. Debt of Rs140 billion has already been tied up. The rest could be met through internal accruals, warrants/rights issues or divestments.
Our sum-of-parts valuation gives us a target price of Rs1,505, at which it would trade at 19x FY11e earnings and 3x FY11e book value.
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