>TATA POWER (EDELWEISS)

Maharashtra Electricity Regulatory Commission (MERC) has directed Tata Power (TPWR) to provide power on a regulated basis to Reliance Infrastructure. As per media reports, TPWR is expected to maintain status quo by continuing to sell 460 MW and 200 MW until June 2010 and March 2011, respectively, at regulated prices. Lower offtake post June 2010 is due to TPWR’s PPA with BEST and its new customer acquisition in the Mumbai license area.

■ Fallout: The management had earlier guided for ~200 MW of merchant sales, starting
April 2010, due to Reliance Infrastructure refraining from signing a PPA with TPWR. However, based on the recent directive, this will not be possible; hence, any upside in earnings due to this would be limited.

■ Takeaway: We had always assumed that TPWR’s entire generation from Trombay units
would be sold on a regulated basis and, hence, had not factored in any merchant sales. We believe TPWR would appeal against this order in the Supreme Court.

■ Stock impact: Based on the management’s guidance, since investors had assumed upside from merchant sales, there could be a correction. However, we recommend investors to ‘BUY’ at ~INR 1,250 price levels.

To read the full report: TATA POWER