The Hindu Business Line : Tata Power trips on profits concern

THE stock of Tata Power was the major loser among BSE Sensex and NSE's Nifty stocks in today's trading due to concern of fall in profits in the current fiscal, analysts said.

In today's trading, the stock was down 4.45 per cent at Rs 249.10 on the BSE with volumes of 15.87 lakh shares; on the NSE, it was down 4.43 per cent at Rs 249.25 with volumes of 28.48 lakh shares.

Brokers and analysts said there is possibility of decline in net profits of the company in the current fiscal due to the cut in tariffs by Maharashtra Electricity Regulatory Commission (MERC).

According to ABN Amro Asia Equities (India), "We forecast a 15.6-per cent decline in 2004-05 earnings, leaving them 37 per cent lower than consensus expects". It said this is due to the 9.2-per cent tariff cut ordered by the MERC for the Mumbai licensee area, which accounts for almost 85 per cent of Tata Power's revenues.

There is also concern on the incremental returns on Tata Power investments due to the Central Electricity Regulatory Committee (CERC) stipulation on debt-equity ratio. CERC stipulated a 70:30 debt-equity ratio for all investments in the sector and in the past, utilities would plough their earnings back into the business to attract returns at par with equity. "The change is likely to adversely affect returns on incremental investments made by Tata Power" ABN Amro said.

Another concern for the stock could be the U-turn for the power sector reforms under the new government.

"Any curtailment of reform funding would delay the privatisation of State Electricity Board (SEB) assets, a potential source of inorganic growth for private-sector utilities such as Tata Power," said an analyst.