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BSES: Long term story - Views on News from Equitymaster
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  • Jan 29, 2002

    BSES: Long term story

    BSES Limited, one of India's premier private utilities, has recorded a 3% growth in operational income during 3QFY02. A marginal dip in operating expenses saw margins improve and BSES finally finished with a 13% profit growth during the quarter.

    (Rs m) 3QFY01 3QFY02 Change 9m FY01 9m FY02 Change
    Sale of electrical energy 5,508 6,013 9.2% 16,861 17,702 5.0%
    Income from EPC, contracts & computer division 1,335 1,013 -24.1% 3,587 3,042 -15.2%
    Total operating income 6,843 7,025 2.7% 20,448 20,744 1.4%
    Other Income 168 154 -8.5% 456 490 7.6%
    Expenditure 5,543 5,535 -0.1% 16,389 16,522 0.8%
    Operating Profit (EBDIT) 1,300 1,490 14.7% 4,058 4,222 4.0%
    Operating Profit Margin (%) 19.0% 21.2%   19.8% 20.4%  
    Interest 145 197 35.7% 507 497 -2.1%
    Depreciation 494 507 2.8% 1,444 1,542 6.8%
    Profit before Tax 829 940 13.4% 2,563 2,674 4.3%
    Tax 60 72 19.5% 330 185 -43.8%
    Profit after Tax/(Loss) 769 868 12.9% 2,233 2,488 11.4%
    Net profit margin (%) 14.0% 14.4%   13.2% 14.1%  
    No. of Shares (eoy) (m) 137.8 137.8   137.8 137.8  
    Diluted Earnings per share* 22.3 25.2   21.6 24.1  
    Current P/e ratio   7.9     8.2  

    The company's income from EPC, contracts and computer division saw a significant 24% dip during the quarter, thus effecting overall turnover growth. The expenses relating to this division dipped likewise by 21%. However, the big saving for BSES in costs came in the form of lower cost of energy purchased from Tata Power.

    Cost break-up
    (Rs m) 3QFY01 3QFY02 Change 9m FY01 9m FY02 Change
    Cost of energy purchased 2,627 2,475 -5.8% 8,177 8,046 -1.6%
    Cost of fuel 1,023 1,083 5.9% 2,939 3,155 7.3%
    Costs related to EPC and others 1,201 949 -21.0% 3,190 2,633 -17.4%
    Surcharge on generation 0 86   0 332  
    Staff cost 255 323 26.7% 816 824 0.9%
    Other expenses 438 619 41.3% 1,267 1,533 21.0%
    Total expenditure 5,543 5,535 -0.1% 16,389 16,522 0.8%

    On a nine month consolidated basis, BSES's operational income improved marginally by over 1% YoY, and its profits were up over 11%. A lower tax buden in the current year has saved BSES's nine month numbers so far. In the nine month period too, EPC, contracts and computer division recorded a 15% decline in revenues.

    In these nine months (April-December 2001), BSES generated 2855 million units, up by nearly 7% YoY. However, it actually sold 4377 million units during the period, a growth of over 4% YoY. The shortfall in electricity (1522 MUs) is likely to have been bought from Tata Power. BSES's offtake from Tata Power has seen a marginal decline in 9m FY02, and this has resulted in cost savings for the company, thus improving operating margins.

    Power stats...
    (MUs) 9m FY01 9m FY02 Change
    Generation 2683 2855 6.4%
    Sale of electricity 4194 4377 4.4%
    Bought from Tata Power 1511 1522 0.7%

    The degrowth in EPC income during FY02 so far has hit BSES's growth. Another concern in the lacklustre growth in sale of electrical energy. BSES seems to have reached a plateau, as far as income from sale of electricity is concerned. Its Dhanau plant is working at optimal capacity, but beyond that there seems no scope for growth in Maharashtra atleast. The company's Saphale project is on a backburner. Its Orissa venture is in losses, atleast for the time being. It would take atleast 2 years for this business to break-even.

    Moreover, the sword of the standby charges dispute hangs over the company. The company has so far deposited Rs 865 m with the MERC over standby charges dispute with Tata Power. It is slated to deposit another Rs 325.6 m with MERC in the fourth quarter of the current year. It must be noted that BSES has designated this total charge as deposits with MERC. If the ruling is not in favour of BSES, then it would have to write off these deposits, thus affecting future bottomline.

    However, despite these short term negatives, the company has earmarked an ambitious Vision 2012. As per this, BSES is targeting an aggregate capacity of 9,000 MW by 2012. It is also looking at becoming a developer in at least three transmission circles and acquiring 6 distribution circles by 2012. Given Reliance's interest (over 30% stake) in the company, BSES is likely to achieve these targets, organically or inorganically.

    So over the long term growth will come through with capacity addition. At Rs 198 the stock trades at 8.8x our expected FY02 earnings.



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