Motilal Oswal - Tata Power to benefit from increase in mining reserves; maintain Buy
TPWR-20080408-MOSL-CU-PG008.pdf
Bumi Resources conference call: Key takeaways=85=
n Bumi re= ports robust 2007 performance: During CY07, Bumi reported revenues of US$2.3b (up 22.3% YoY), PBT of US$383m (up 98.4% YoY) and core net income after minorit= y interest of US$317m (up 66.8%). Bumi recorded production of 54.2m tons of coal, up 6.9% (vs 50.7m ton in CY06), while the sale of coal stood at 55.4m ton, a growth of 10.8% = YoY (vs 50m ton in CY06). The average selling price for CY07 (FOB prices before government royalty) stood at US$44/ton (vs US$40.8/ton in CY06), up 7.8% YoY.
= n Robust CY08 guidance: B= umi's management guided for sales volumes of 62m tons (up 12% YoY) and average selling price of US$70/ton for CY08 (v/s earlier guidance of US$64/ton). Th= e company expects to better the strip ratio to 9.5x v/s 9x in CY07, with production efficiencies. Recently, the management of Tata Pow= er indicated that medium term coal production target from KPC and = Arutmin mines stands at 100m tons.
= n Increase in proven and measured reserves: Based on the report submitted by independent consultant in September 2007, proven reserv= es for KPC and Arutmin mines put together stands at 1,402m tons (up 29%, v/s 1,087m tons as per December 2005 report). The meas= ured reserves of coal for both the mines has increased to 6,730m tons (up 10%, v= /s 6,124m ton in earlier report).
= n Valuation and view: We expect Tat= a Power to report net profit (excluding share of profit from KPC and Arutmin mines of Bumi) of Rs7.3b for FY08, Rs8.1b in FY08 and Rs9.9b in FY10. We arrive at target price of Rs1,365/share based on SOTP methodology comprising of: power business at Rs437/share, def= ense business at Rs13/share, Delhi distribution business at Rs78/share, Investme= nts and cash balance at Rs431/share, stake in mines of Bumi Resources at Rs301/share, Mundra UMPP at Rs38/share, Man= dakini coal mine allocation at Rs134/share, Maithon pow= er project at Rs53/share, less debt at Rs87/share. At CMP of Rs1,134, the stock trades at PER of 30x FY09E and 27x FY10E. Buy.
