Facing Fluctuations - Tata Power Company

We had recommended Tata Power Company (TPC) to our investors in Issue No 3 dated February 1, 2009 at Rs 766.50. In times of uncertainty it is certainty that provides solace and that was the reason for our recommending TPC to our investors as our choice scrip. With an almost assured revenue stream it was the safest bet available. Our recommendation was also backed by certain other factors like a consistent topline as well as bottomline growth and a strong history of regular dividend payments. Further, TPC’s aggressive growth plan for the addition of about 10,000 MW of generation capacity was also an important factor.

After our recommendation the scrip took a beating and touched a low of Rs 606 on account of disputes regarding the coal mines in India. Further, the below expectation financial performance for 9MFY09 was another reason for the fall. For 9MFY09 the company posted a topline of Rs 5,761.88 crore and a bottomline of Rs 516.56 crore as compared to Rs 4,281.44 crore and Rs 644.91 crore in 9MFY08.

However, the scrip bounced backed and touched our target price of Rs 900 and is now trading at Rs 880, thus providing an appreciation of 16 per cent. On the valuation front, the scrip is trading at 26x of its trailing four quarter earnings and 2.44x of its book value. Although there is not much change in the fundamentals of the company, booking profit would be a wise move in view of the existing scenario.