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Tata Power: MSEB electrifies performance - Views on News from Equitymaster
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  • Jan 23, 2003

    Tata Power: MSEB electrifies performance

    Tata Power, India's largest private sector utility, has reported significant 23% growth in topline during December quarter. The spurt in the topline seems largely a result of increased sales to MSEB during the quarter. Tata Power sold 400 MUs to MSEB during the December quarter, up 194% YoY. This spurt in demand may have been owing to the plant shutdown of the beleaguered Dabhol Power Company. Also, the company's second phase of Wadi power plant (37.5 MW) became operational in 2QFY03 and this could also have contributed to the growth in topline. The company reported a significant 35% growth in net profits led by this topline performance.

    (Rs m) 3QFY02 3QFY03 Change 9mFY02 9mFY03 Change
    Sales 9,300 11,479 23.4% 29,673 33,904 14.3%
    Other Income 640 326 -49.0% 1,931 1,188 -38.5%
    Expenditure 7,230 8,348 15.5% 22,543 24,892 10.4%
    Operating Profit (EBDIT) 2,070 3,131 51.2% 7,129 9,012 26.4%
    Operating Profit Margin (%) 22.3% 27.3%   24.0% 26.6%  
    Interest 720 817 13.5% 2,213 2,389 7.9%
    Depreciation 700 808 15.4% 2,101 2,436 15.9%
    Profit before Tax 1,290 1,832 42.0% 4,747 5,376 13.3%
    Extraordinary income 0 0 - 884 0 -
    Tax 210 372 77.2% 1,237 1,729 39.8%
    Profit after Tax/(Loss) 1,080 1,460 35.2% 4,394 3,647 -17.0%
    Net profit margin (%) 11.6% 12.7%   14.8% 10.8%  
    Diluted no. of Shares (eoy) (m) 197.9 197.9   197.9 197.9  
    Diluted Earnings per share* 21.8 29.5   29.6 24.6  
    Current P/e ratio   3.7     4.5  

    Tata Power continues to do well at the operational level. The company's operating margins seem to have gone up largely as a result of improvement in capacity utilisation due to increased demand from MSEB. Considering the fixed return on capital on which the power business in India operates (16% on capital employed), profits seem to have grown in tandem with the improvement in capacity utilisation, despite a sharp dip in other income.

    MSEB boon...
    (MUs) 3QFY02 3QFY03 Change 9mFY02 9mFY03 Change
    Sales to MSEB 136 400 194.1% 346 669 93.4%

    On a nine month consolidated basis, the company finished with 14% topline growth and a 17% dip in net profit. The extraordinary income shown in 9mFY02 reflects the profit on sale of investments like sale of US 64 units as well as sale of its stake in Tata BP Lubricants. Tata Power was also done in by a surge in taxes (up 40% YoY).

    Cost break-up
    (Rs m) 3QFY02 3QFY03 Change 9mFY02 9mFY03 Change
    Cost of power purchased 1,000 991 -0.9% 2,987 3,067 2.7%
    Cost of fuel 4,260 5,997 40.8% 14,170 16,821 18.7%
    Staff cost 360 405 12.6% 1,041 963 -7.4%
    Other expenses 1,610 956 -40.6% 4,345 4,040 -7.0%
    Total 7,230 8,348 15.5% 22,543 24,892 10.4%

    Tata Power has recently invested Rs 1,803 m in North North-West Delhi Distribution Company Ltd. for a 49% stake. With effect from July 01, 2002, the company has management control of the aforesaid distribution company. The broadband business of Tata Power has not yet commenced commercial operations and accordingly the income and expenditure during the trial runs have been capitalised and do not form a part of the reported numbers in 9mFY03.

    At the current market price of Rs 110, the stock is trading at 5.4x our estimated FY03E earnings, price to book value of 0.5x. Given the spurt in demand from MSEB the company is likely to report good performance even in 4QFY03. Consequently, the stock may strengthen in the short term. However, concerns remain over the company's investments in distribution circle of Delhi, where returns are expected to filter only in the long run. Also, there are concerns over the company's increasing exposure to the Tata Group's telecom ventures (so far invested in excess of Rs 5 bn in Tata Teleservices and Panatone Fininvest - the holding company of VSNL). Tata Power is a key player in the power and telecom industry and in that sense, tangible benefits will accrue only in the long term.



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