Tata Power’s tough stance on Mundra plant does nothing to power up stock

Tata Power Co. Ltd’s threat to snap electricity connections from the loss-making Mundra plant if states do not revise tariffs did little to quell investor concerns. The stock continued to slip, hitting a new 52-week low last week.

The company warned about the potential fallout of the delay in raising tariffs. “Should compensatory-tariff approval from states be delayed based on cost-benefit analyses, it may perhaps be better to shut the plant down during April-June 2020,” analysts at Antique Stock Broking Ltd said in a note presenting Tata Power management’s views after a conference call.

Graphic by Naveen Kumar Saini/Mint

Losses at the Mundra power plant in Gujarat have shrunk in recent quarters, reflecting the downtrend in fuel (coal) costs. But that brings little solace. High electricity offtake in the summer months can vastly increase losses. As demand rose, Mundra power plant’s utilization increased from 78% in Q3 FY19 to 85% in Q4.

Even if state power distribution companies acknowledged the supply disruption threat, relief could be a long-drawn process. Of the five, only one state has so far agreed to a tariff revision.

Further, there is the question of the plant’s future. Finding long-term customers for a 4,000 megawatts plant is not easy. Meanwhile, Tata Power will have to bear the burden of the ₹15,000 crore estimated debt for the plant.

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