Tata Power closed 1.8% higher in trade on Wednesday on the back of strong 4QFY15 result. The company has reported Rs.1.5bn consolidated Net Profit in 4QFY15 compared to Rs1.45bn Net Loss in 4QFY14.
This was aided by lower fuel cost in CGPL Mundra, lower depreciation cost and better performance of Mumbai operations. Tata Power's stock performance has been lackluster over the last 3 years on account of Mundra tariff issue and operational issues regarding Mumbai License area.
We believe most of the near-term risks in terms of losses from Mundra project is already reflected in the share price. Near term trigger could be final tariff order for Mundra plant.
We believe that Mundra UMPP has been a big overhang for Tata Power and a tariff hike of 30-35p/kWh would be enough to make Mundra’s NPV neutral.
At the CMP, Tata Power trades at 1.4x FY17E P/BV and 7x FY17E EV/EBITDA. We maintain our BUY recommendation and Target Price of Rs.93 on the stock.
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