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Tata Power Vs Reliance Power

October 31, 2008

Tata Power reported net revenue of Rs19.6bn (up 45% YoY), primarily on the back of increasing fuel costs which are a complete pass through in the regulated business model. EBITDA was up 1% YoY at Rs2.7bn; however, EBITDA margins were under pressure this quarter declining by 584 bps YoY primarily due to an increase in cost of fuel (up 76% YoY). Other income (excluding Rs1.7mn on profit on sale of investment in F2Q09 vs Rs851mn in F2Q08 and forex gain of Rs767mn in F2Q09 vs Rs90 mn in F2Q08) was Rs1.1 bn (up 141% YoY). This was largely attributed by dividend income received from subsidiaries.

Reported earnings, however showed a modest 2% YoY decline at Rs2.5bn. The
company’s consolidated forex debt is US$980mn, which includes US$900mn in the coal SPVs and US$80mn in the corporate book. On acquisitions, Tata Power stressed that it will look at it only when it feels that the valuations look reasonable and denied speculation of any specific potential acquisitions.

Tata Power is expected to report EPS between Rs 27 to Rs 29 for FY09

Reliance Power:
The company intends to secure financial closure for ~9GW of generation capacity by Mar-09. Management is negotiating for annual interest-rate reset clauses while tying up debt funding; typical cost of funds is currently 12.5%-13%. As international coal prices drop, RPWR is receiving unsolicited proposals for long-term coal supply for its proposed coastal coal-fired projects. On gas supplies, mgmt. is optimistic of a near-term resolution of the dispute between Reliance Industries and Reliance Natural Resources on their gas supply agreement.

RPower has Cash on books (aggregating ~Rs45/share, 42% of market cap) does not have any exposure to equity markets.

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