MUMBAI Shares in Tata Power(TTPW.NS) and Adani Power(ADAN.NS) rose on Monday after the power regulator said they could raise tariffs for electricity from their plants in Mundra, a decision also likely to boost their earnings outlook.
The plants at Mundra, in Gujarat, are among the biggest for the two utilities, which have been struggling with higher coal costs.
Utilities in India rely on imported coal due to a shortage of domestic supplies but they are unable to charge more because of the populist low-tariff regimes governing their main customers, the state-run electricity distributors.
In addition to allowing Tata and Adani to raise tariffs, the Central Electricity Regulatory Commission said the utilities could now charge these state-run electricity distributors the higher tariff for electricity they bought for the last fiscal year.
Shares in Tata Power rose as much as 7 percent on Monday to 84.35 rupees, their highest level in nearly two months. The stock is still down 10 percent this year and had fallen 17 percent last year. Adani shares rose as much as 5 percent.
"It's definitely positive for Tata Power and Adani in the near-term. This was a major overhang, specially for Tata. This decision will start having an impact on their bottom lines in the next couple of quarters," said Neeraj Dewan, director at brokerage Quantum Securities.
Brokerage Edelweiss on Monday changed it rating on Tata Power to buy from hold and raised the share price target to 99 rupees from 76 rupees after the regulator's decision.
The regulator said Tata should be reimbursed $52 million for the fiscal year ended March 2013. The company can also raise tariffs by 0.524 rupees per unit for the current fiscal year for power generated from Mundra, it said in an order dated February 21.
"The company finds the order balanced perhaps keeping in view the beneficiaries and consumer interests," Tata Power said in a statement.
Adani, which would be eligible for a "compensatory tariff" of 8.3 billion rupees for the last fiscal year, also said the order would help in sustaining its operations in Mundra.
(Reporting by Aradhana Aravindan and Sumeet Chatterjee; Additional reporting by Abhishek Vishnoi; Editing by Miral Fahmy)