Tata Power Ltd’s Mundra saga continues. In the December quarter, the company has taken yet another impairment charge on that power plant, citing uncertainty of future cash flows even as it fights to increase the tariff from that project.
The Rs.600-crore charge comes on top of the Rs.250 crore earlier this fiscal and the Rs.1,800 crore in the last fiscal. That eroded profits and the company reported a net loss of Rs.329 crore at the consolidated level.
At a stand-alone level (excluding Maithon and Mundra factories), power generation was down 2.4% from a year ago. However, the company added new capacity in its subsidiaries and that, plus some increased tariffs, saw the power business revenue gain 64% from a year ago. On the other hand, revenue from the coal business fell 9% from the earlier year mainly owing to lower realizations as the international prices of that fuel fell. Thus, consolidated revenue grew 36% from a year ago.
That jump in revenue boosted Tata Power’s earnings before interest, taxes, depreciation and amortization (Ebidta) by 83% from a year ago and constituted the bright spot in the December quarter results.
However, the new capacity at Mundra and Maithon entailed higher depreciation charges. Interest costs, too, jumped 72% from a year ago, while the company didn’t receive any dividend from its coal projects. That, along with the impairment charges, led to a net loss.
Even adjusted for one-off charges, the numbers do not make for great reading. If one adjusts for the impairment charge, the foreign exchange loss of Rs.86 crore and the Rs.130 crore gains booked in its Mumbai distribution business (essentially prior-year income), the net profit in the December quarter comes to Rs.227 crore. That is still 59% lower than a year ago.
Maithon and Mundra remain the key points of investor concern. The former made a loss of Rs.15.2 crore. At Mundra, losses totalled Rs.829.6 crore. The impairment charge and under-recovery of fuel costs for the project (Tata Power is contracted to sell power from this factory at Rs.2.26 a unit) means that the operating profit from Mundra is inadequate to even cover interest and depreciation, according to the company.
Tata Power is restructuring the Mundra subsidiary in an attempt to contain the damage. According to brokerage Motilal Oswal Securities Ltd, this suggests “it is in the process of transferring 75% stake in mining companies to Mundra UMPP (ultra mega power projects) and thus, there would not be any further impairment”. However, unless there is more clarity on the tariffs in this project, which is being reviewed by the Central Electricity Regulatory Commission, the stock will continue to underperform.