Tata Power (TPL) has signed an option agreement to sell its 5% stake in PT Kaltim Prima Coal (KPC) Indonesia coal mines for USD 250 million with Indonesian mining conglomerate, the Bakrie Group.

The proceeds will be used to reduce its consolidated debt, which would soften the pressure on its cash flow. The agreement also includes the entire 30% stake sale in the companies associated with KPC, operating in the coal trading and infrastructure business. The option, if exercised, would reduce TPL's holding to 25% in the KPC mine. It will not impact the contracted coal supplies for its Mundra plant.

Commenting on the same, ICICIdirect said, "We believe the recent stake sales (KPC & Arutmin) will help TPL bring down its debt by Rs 50 billion. This would ease its D/E ratio to 2.3x vs. the current level of 3.3x and improve the company’s cash flow position. While the final verdict from APTEL on Mundra's tariff is still awaited, any positive outcome on the same along with the above deleveraging exercise could act as a near term trigger for the stock. We continue to maintain our Hold rating on the stock with a target price of Rs 107."

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