Tata Power Gains After New India Electricity Norms: Mumbai Mover

Tata Power Co. rose the most in almost three months after India’s electricity regulator allowed it to increase prices from a plant in the state of Gujarat to compensate for higher coal costs.

Tata Power, part of the Tata group, increased 5.1 percent, the most since Dec. 6, to 82.85 rupees at the close in Mumbai. The stock has gained more than 5 percent in a day on five occasions in the past year, according to data compiled by Bloomberg. The benchmark S&P BSE Sensex rose 0.5 percent.

Tata Power will receive 3.3 billion rupees ($53 million) and Adani Power Ltd. 8.3 billion rupees in monthly installments over a year and a half from state-run distribution companies to make up for the higher cost of coal imported from Indonesia for the year ended March 2013, the Central Electricity Regulatory Commission said in a Feb. 21 order. Adani fell 0.4 percent to 36.40 rupees after rising as much as 5.2 percent intraday.

The regulator also ordered utilities to charge production incentives based on actual offtake and not on their readiness to produce power at above 85 percent capacity utilization, sending shares of NTPC Ltd., the nation’s biggest utility, down 12 percent to 116.90 rupees, the lowest since August 2006.

“There will be a big overhang on NTPC because of this and investors could move to owning other power companies,” said Kenin Jain, head of equity sales at Emkay Global Financial Services Ltd. “Tata Power and Adani will become investors’ targets.”

The order will help make Tata Power’s 4,000 megawatt and Adani’s 4,620-megawatt power stations, both located in Gujarat, viable, the companies said in separate statements.

Compensatory Tariff

The regulator allowed Tata Power a compensatory tariff of 0.52-rupee a unit for its power station at Mundra in Gujarat for the year ending March 31, Ambit Capital Pvt. analysts Bhargav Buddhadev and Deepesh Agarwal wrote in a report today.

Tata Power had won the right to supply 3,800 megawatts from its Mundra plant to various state electricity distributors at 2.26 rupees a kilowatt hour, according to the Ambit report. The company’s cost of producing power increased after Indonesia changed some coal-export laws and made electricity production unviable for Tata Power.

“The decision was awaited to make Mundra viable, which had got impacted due to no fault of itself, but due to change of law at Indonesia,” Tata Power said in a regulatory statement today. “This will help in resolving a major impasse affecting imported coal-based power projects in the country that got impacted due to uncontrollable extraneous factors.”

Ambit upgraded Tata Power’s estimate for earnings before interest, tax, depreciation and amortization by 28 percent for the year starting April 1. NTPC’s earnings per share may drop by as much as 15 percent in the period, Emkay analysts Amit Golchha and Anujay Jain wrote in a report today.

NTPC shares were cut to underperform from outperform by Standard Chartered Securities’ analysts Jay Kakkad and Pankaj Kapoor, while Tata Power was raised to buy from outperform at CLSA.

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