Shares of Tata Power Co. Ltd gained 1% on Monday after the company reported better-than-expected performance for the September quarter. Excluding adjustments, consolidated revenue rose 7%. Net profit stood at Rs.247 crore, compared with a loss in the year-ago quarter.
The company benefited from higher electricity generation and low fuel costs. Generation at the consolidated level increased 6.6%. Stand-alone generation is up 4%, compared with an 8% drop a year ago.
Better generation drove power business revenues up by 10%. As fuel costs fell, margins at the power business expanded, driving up the operating profit by 19%.
Losses at the troubled Mundra power plant came down significantly, falling from Rs.274 crore to Rs.74 crore. From $55 per tonne, the price of coal for Mundra plant fell to $48 per tonne. Plant availability improved 10 percentage points and generation at the plant rose 4%. The improved operating performance reduced the losses.
Sales at the coal business continued to fall. Tracking low prices and a 6% drop in volumes, revenues fell 13%. But operating profit jumped 20% from a year ago as the unit benefited from low costs. Margins expanded almost three percentage points to 10.6%.
The expansion in margins and operating profits at the coal business is heartening, considering the headwind the business is facing such as low demand and prices.
The improved performances at both the businesses boosted Ebitda (earnings before interest, taxes, depreciation and amortization), a measure of profitability, helping the company report a profit for the quarter. "Tata Power reported its Q2FY16 results with both reported and adjusted PAT (profit after tax) above our and consensus estimates primarily driven by a fall in international and domestic coal prices," ICICI Direct said in a note.
While the performance is better than Street estimates, the Tata Power stock is trailing the broader markets for some time now and is down 26% in the past one year.
Delay in Mundra plant compensatory tariff order and Arutmin coal plant stake sale were clouding the outlook.
It is not yet clear when final decisions on these issues will happen. But if coal prices trend lower and Tata Power finds enough takers for electricity, losses at the troubled Mundra plant may continue to come down further, helping reduce one headwind.
While it has to be seen if the states will be forthcoming about electricity purchases, elimination of losses at Mundra plant can help revive the Tata Power stock.