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Tata Power: Better margins lead profit surge
Feb 15, 2011

Tata power has declared its 3QFY11 results. The company has reported 2% YoY decline in consolidated sales while net profit has surged by 348% YoY. Here is our analysis of the results.

Performance summary
  • Consolidated net sales fall by 2% YoY during 3QFY11, largely due to a decline in sales of the power business.
  • Consolidated operating margins rise to 23.7% in 3QFY11, from 12.1% in 3QFY10 - improvement aided by lower cost of power purchased (as a percentage of sales).
  • Led by the improvement in operating margins and higher other income (due to high forex gains), consolidated net profits rise by 348% YoY during the quarter. Sales and profit growth for the nine-month period (9mFY11, consolidated) stood at 2% and 41% YoY respectively.


Financial performance snapshot (Consolidated)
(Rs m) 3QFY10 3QFY11 Change 9mFY10 9mFY11 Change
Power generation (m units) 3,851 3,713 -3.6% 12,157 11,794 -3.0%
Units sold (m units) 3,714 3,824 3.0% 11,829 12,283 3.8%
Net sales 45,158 44,409 -1.7% 141,220 144,353 2.2%
Expenditure 39,690 33,864 -14.7% 114,194 111,045 -2.8%
Operating profit (EBDITA) 5,468 10,546 92.9% 27,026 33,308 23.2%
Operating profit margin (%) 12.1% 23.7%   19.1% 23.1%  
Other income 385 783 103.1% 1,856 3,049 64.3%
Interest 1,853 2,109 13.8% 5,786 5,908 2.1%
Depreciation 2,208 2,490 12.8% 6,463 7,310 13.1%
Profit before tax 1,792 6,730 275.5% 16,634 23,139 39.1%
Tax 265 2,089 688.7% 5,497 7,627 38.7%
Minority interest (10) (80) 742.1% 1,130 1,383 22.4%
Share of profit of associates (551) (307) -44.2% 194 216 11.7%
Profit after tax/(loss)# 986 4,414 347.8% 10,201 14,346 40.6%
Net profit margin (%) 2.2% 9.9%   7.2% 9.9%  
No. of shares       237.2 237.3  
Diluted earnings per share (Rs)*         100.3  
P/E ratio (x)*         12.7  
* On a trailing 12-months basis

What has driven performance in 3QFY11?
  • Tata Power saw nearly a 2% YoY decline in its consolidated net sales during the quarter. Sales from the power business declined by 10% YoY. This was a result of lower realisation per unit on the company's merchant sales, and was despite the fact that total volume sales of electricity increased by 3% YoY during the quarter. As for the company's coal mining business, sales grew by 17% YoY during the quarter. This was on the back of better realisations even as the company sold lesser coal during the quarter as compared to its volume sales in 3QFY10.

    Segment wise sales (Consolidated)
      QFY10 3QFY11 Change 9mFY10 9mFY11 Change
    Power            
    Revenue (Rs m) 29,094 26,113 -10.2% 94,509 91,088 -3.6%
    % of total revenue 64.2% 58.1%   66.5% 62.5%  
    PBIT margins 17.7% 15.4%   16.9% 15.3%  
    Coal (Indonesian mines)            
    Revenue (Rs m) 14,346 16,723 16.6% 41,122 46,863 14.0%
    % of total revenue 31.6% 37.2%   28.9% 32.2%  
    PBIT margins 11.9% 25.9%   13.2% 26.0%  
    Others*            
    Revenue (Rs m) 1,904 2,125 11.6% 6,520 7,737 18.7%
    % of total revenue 4.2% 4.7%   4.6% 5.3%  
    PBIT margins 3.9% 1.2%   8.8% 25.3%  
    * 'Others' includes defense electronics, solar equipments, projects, coal bed methane and property development

  • Tata Power's operating margins improved to 23.7% during 3QFY11, from 12.1% in 3QFY10. This was on account of the fall in power purchase costs. As percentage of sales, these costs declined from 24.3% in 3QFY10 to 19.1% in 3QFY11. The company also recorded a decline in its other expenses, from 26.9% of sales in 3QFY10 to 17.8% in 3QFY11.

  • Consolidated net profits grew by a substantial 348% YoY during 3QFY11, largely as a result of the rise in operating margins and higher other income. This rise in other income was due to a higher forex gain recorded during the quarter.

What to expect?
At the current price of Rs 1,270, the stock is trading at a multiple of 1.7 times our estimated FY13 book value. We maintain our view on the stock from a 2-3 years perspective.

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