Target: ₹261

CMP: ₹206.15

Mundra has received a favorable order from the regulator for supply of power under cost plus basis from May-22 to December-22

Tata Power has been supplying power from Mundra to procurers under emergency measure on cost plus basis from May -22. Tariff comprises of capacity charges and energy charges. Regulator has allowed capacity charges as per PPA and energy charge after deducing mining profits in Indonesia.

However, a few of the procurers were not paying the fixed charges and one of the procurers started deducting ₹0.20/kwh from the toll. As a result, this led to a negative impact of ₹250 crore per quarter on profit in H1-FY23. Now, regulator has ruled that payment of fixed charges by all the procurers is mandatory and sharing of 30 per cent of mining profit commensurate with the supply of coal to power plants (vs 100 per cent sharing).

Tata power has supplied 9BU in 9mFY23. It has accounted for 100 per cent of mining profits to be shared with procurers. However, the regulators have allowed only 30 per cent (stake in mines) of the profits to be shared. As a result, there could be material upside from the order.

Based on our estimates, we expect Mundra + coal profit to improve substantially.

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