Tata Power Eyeing 26 GW Capacity By 2020 Amidst Uncertainty

Private sector power utility company, Tata Power, has said that it is targeting a power generation capacity of 26 GW (26,000 MW) by 2020. According to an article in Wall Street Journal, its managing director Anil Sardana has said that the company is also targeting to achieve 50 million metric tonnes of coal production by 2020.

Some days back the management had said that the company would be putting on hold its 2,400 MW of power generation capacity due to coal shortages in the country. Besides, it also said that the management would analyze the regulatory environment in coal producing countries and that all the imported coal projects would be kept on hold.

Now with the management putting forth a contrasting view, we are not clear if the company is really aiming to reach the said capacity level. In case it is, Tata Power will have to invest hugely in acquiring coal mines overseas. Currently it holds 30 per cent stake in two Indonesian mines. However, after the changed regulations in Indonesia, the cost of coal has become linked to international coal prices. Tata Power has therefore been facing tariff woes in its 4,000 MW Mundra Ultra Mega Power Project. Even other companies like JSW Energy, Reliance Power, etc have issues with imported coal.

With the tariffs in a few states now hiked, there could be a possibility about Tata Power getting the government’s nod for their plan. However, we remain skeptical as the nation will face elections in the next two years and the government may be refrained to do so in many states. The company currently has a generating capacity of 5,299 MW and expects to add another 1,425 MW by the end of the current fiscal, which includes Unit II of Mundra UMPP (800 MW), Maithon Unit II (525 MW) and 100 MW wind mills.

The financial performance of the company in FY12 has been below average as despite showing a 34 per cent rise in its topline, it posted net loss of Rs 968 crore. It has a total debt of Rs 32,510 crore which includes foreign currency borrowings as well. The company also incurred foreign exchange loss of Rs 425 crore. The environment for the power business continues to remain very competitive. The recent gains in the power index had been of a speculative nature and hence we reiterate our call to avoid the scrip.