Tata Power's Q3 result has some positives & some negatives. The company's Total Income figure was flat Y-o-Y and 2.5% lower Q-o-Q. The reason being lower revenues from Coal business because of lower Coal prices. Tata Power did well on the EBITDA margin front where it managed over 450 bps improvement over that reported in Q3 of last fiscal. Even compared to previous quarter, the EBITDA margin was slightly better. The company has attributed this improvement to strong operating performance of it's Power subsidiaries. I think there is still scope for improvement in some of the company's Power subsidiaries, which should be seen over the next 3-4 quarters.
In the following charts I have shown the T-T-M progress of Tata Power's Total Income, EBITDA, Profit before Tax & Provisions and finally the Interest Cost. Have a look:
As we can see from the charts, Tata Power's Total Income has stagnated this quarter, but the EBITDA is still showing continued strong improvement Q-o-Q. I think we will see one more such strong Q-o-Q improvement in EBITDA and then the improvements will be much slower, though it will be positive. Tata Power's T-T-M EBITDA crossed the Rs.9000 crores mark this quarter and the company has been hitting a new Best-ever figure over the last 3 quarters. I am expecting Tata Power to even hit the Rs.10,000 crores in T-T-M EBITDA sometime in the next 3-4 quarters. This surge in EBITDA over the last 3 quarters is clearly the signal that the worst pain period for Tata Power is finally over, after having struggled ever since the company jumped into the UMPP bandwagon & few other projects, all of which have faced difficulties at some level or the other.
The sharp improvement in EBITDA will ultimately lead to improved Cash Flows from operations, which will ultimately help in reducing the Debt burden to some extent and hence reduce the Interest Cost load. Tata Power has reported a Q-o-Q and Y-o-Y dip in Quarterly Interest Cost over the last 2 quarters. As of now the dip is not big, but I am expecting a little bigger drop in Quarterly Interest Cost over the next few quarters, which should help boost the company's Cash Flows further. The improved Cash Flows from existing operations will help the company pursue it's projects under implementation with a new vigour. Tata Power has also created a new Renewable Energy subsidiary and is shifting all it's Solar, Wind & Hydro assets into that subsidiary. This restructuring should help streamline it's operations as the company has big plans for Renewable Energy space.
The Net Profit of the company continues to be impacted because of various Provisions. Some of these Provisions involve Cash Payouts, while some others are just Accounting measures. Nevertheless these Provisions do pull down the company's Net Profit figure, which looks bad on the P&L. In the charts above, we can see the sharp improvement in T-T-M Profit before Tax & Provisions for Tata Power over the last 3 quarters, but unfortunately a major portion of this gain was wiped out by the various Provisions the company undertook. Hopefully the Provisions will reduce in the coming quarters and then we will see sharp improvement in the company's reported Net Profit figure.
About Valuations, I had already discussed it in my previous report on Tata Power posted couple of months ago and the company continues to trade around the same Market Cap level as then. I am clearly bullish on the possibility of Tata Power stock getting re-rated in the coming months to the tune of 50-75% over the next 12 months or so.
In the following charts I have shown the T-T-M progress of Tata Power's Total Income, EBITDA, Profit before Tax & Provisions and finally the Interest Cost. Have a look:
The sharp improvement in EBITDA will ultimately lead to improved Cash Flows from operations, which will ultimately help in reducing the Debt burden to some extent and hence reduce the Interest Cost load. Tata Power has reported a Q-o-Q and Y-o-Y dip in Quarterly Interest Cost over the last 2 quarters. As of now the dip is not big, but I am expecting a little bigger drop in Quarterly Interest Cost over the next few quarters, which should help boost the company's Cash Flows further. The improved Cash Flows from existing operations will help the company pursue it's projects under implementation with a new vigour. Tata Power has also created a new Renewable Energy subsidiary and is shifting all it's Solar, Wind & Hydro assets into that subsidiary. This restructuring should help streamline it's operations as the company has big plans for Renewable Energy space.
The Net Profit of the company continues to be impacted because of various Provisions. Some of these Provisions involve Cash Payouts, while some others are just Accounting measures. Nevertheless these Provisions do pull down the company's Net Profit figure, which looks bad on the P&L. In the charts above, we can see the sharp improvement in T-T-M Profit before Tax & Provisions for Tata Power over the last 3 quarters, but unfortunately a major portion of this gain was wiped out by the various Provisions the company undertook. Hopefully the Provisions will reduce in the coming quarters and then we will see sharp improvement in the company's reported Net Profit figure.
About Valuations, I had already discussed it in my previous report on Tata Power posted couple of months ago and the company continues to trade around the same Market Cap level as then. I am clearly bullish on the possibility of Tata Power stock getting re-rated in the coming months to the tune of 50-75% over the next 12 months or so.
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