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Guj. Ind. Power: Profits surge on lower fuel costs - Views on News from Equitymaster
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Guj. Ind. Power: Profits surge on lower fuel costs
Feb 3, 2010

Performance summary
  • Sales fall by 26% YoY in 3QFY10, most likely due to passing on the benefits of lower fuel costs to customers in the form of lower electricity tariffs. Sales down 21% YoY for 9mFY10.
  • Operating margins more than double to 24.6% during the quarter. Improvement aided by lower fuel costs (as percentage of sales).
  • Net profits surge 267% YoY during the quarter, largely helped by higher operating margins and lower interest and depreciation charges. Profit for 9mFY10 up by 26% YoY.


Financial performance snapshot
(Rs m) 3QFY09 3QFY10 Change 9mFY09 9mFY10 Change
Sales 3,196 2,363 -26.1% 8,727 6,871 -21.3%
Expenditure 2,847 1,782 -37.4% 7,262 5,282 -27.3%
Operating profit (EBDITA) 349 581 66.4% 1,465 1,589 8.5%
Operating profit margin (%) 10.9% 24.6%   16.8% 23.1%  
Other income 53 25 -53.3% 133 116 -12.2%
Interest 75 35 -53.7% 234 129 -44.6%
Depreciation 221 219 -0.7% 660 665 0.7%
Profit before tax 106 352 230.8% 704 911 29.5%
Tax 28 64 129.2% 144 205 42.2%
Profit after tax/(loss) 79 288 266.5% 560 707 26.2%
Net profit margin (%) 2.5% 12.2%   6.4% 10.3%  
No. of shares       151.3 151.3  
Diluted earnings per share (Rs)*         6.6  
P/E ratio (x)*         16.6  
* On a trailing 12 month basis

What has driven performance in 3QFY10?
  • Gujarat Industries Power Co. Ltd. (GIPCL) recorded a 26% YoY decline in sales during 3QFY10. This was on the back of passing on of the benefits of lower fuel costs to customers in the form of lower electricity tariffs. Otherwise, the company recorded a 13% YoY growth in its generation. The same stood at 1,053 m units (MU) during 3QFY10 as against 930 MU generated in 3QFY09. Higher generation was aided by an improvement in the company’s plant load factor (PLF, or capacity utilisation). PLF for its plans stood at 86.6% during the quarter as compared to 83% during 3QFY09. It’s important to note here that the low PLF during 3QFY09 was due to fire in the company’s Surat plant during that quarter.

  • GIPCL saw a sharp improvement in its operating margins during 3QFY10. These stood at 24.6% during the quarter as compared to 10.9% in 3QFY09. This improvement in margins was due to lower fuel costs, which fell from 81.4% of sales in 3QFY09 to 65.5% of sales in 3QFY10.

  • GIPCL’s net profits surged by 267% YoY during the quarter. This was largely helped by higher operating margins and lower interest and depreciation charges. Net profit during 9mFY10 was higher by 26% YoY.

What to expect?
At the current price of Rs 110, the stock is trading at a multiple of 1.2 times our estimated FY12 book value per share. While 9mFY10 sales performance is at a lower run rate than what is required to achieve our full year FY10 estimates, net profits are in line. And this is thanks to a higher than estimated operating margins. At the current valuations, we have a cautious view on the stock.

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