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Guj. Ind. Power: Low volumes impact performance - Views on News from Equitymaster
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Guj. Ind. Power: Low volumes impact performance
Feb 26, 2014

Gujarat Industries Power Company (GIPCL) declared the results for the quarter ended December 2013. The company reported a 6% YoY and a 39% YoY decline in revenues and profits respectively. Here is our analysis of the results.

Performance summary
  • Revenues down by 6% YoY as generation volumes decline by 18% YoY.
  • Operating margins contract by 4.5% YoY to 33% in 3QFY14. The company's performance was impacted by the lower utilisation rates of its power plants. While the plant availability factor (PAF) all of its plants stood in excess of 90%, the Plant load factors (PLFs) varied. At Surat, the PLFs stood at about 69%, while at Vadodara the PLFs came in lower (73% at Station-I, 7% at Station-II).
  • Operating profits decline by 17% YoY during 3QFY14.
  • Profits declined by 39% YoY largely led by a poor operating performance coupled with higher tax charges.
  • During 9mFY14, revenues and profits declined by 9% YoY and 30% YoY respectively.

(Rs m) 3QFY13 3QFY14 Change 9mFY13 9mFY14 Change
Net sales 3,720 3,494 -6.1% 10,852 9,870 -9.0%
Expenditure 2,326 2,341 0.6% 6,793 6,662 -1.9%
Operating profit (EBDITA) 1,394 1,153 -17.3% 4,058 3,208 -21.0%
EBDITA margin (%) 37.5% 33.0%   37.4% 32.5%  
Other income 21 91 326.6% 89 223 149.8%
Depreciation 398 398 0.0% 1,218 1,190 -2.3%
Interest 252 219 -13.1% 798 672 -15.7%
Exceptional items - -   602 -  
Profit before tax 765 626 -18.1% 2,734 1,569 -42.6%
Tax 65 201 207.7% 1,164 467 -59.9%
Effective tax rate 9% 32% 275.5% 43% 30% -30.1%
Profit after tax/(loss) 699 426 -39.1% 1,570 1,102 -29.8%
Net profit margin (%) 18.8% 12.2%   14.5% 11.2%  
No. of shares (m)       151.3 151.3  
Diluted earnings per share (Rs)*         11.4  
Price to earnings ratio (x)         4.8  
Data Source: Company, Equitymaster Research

What has driven performance in 3QFY14?
  • GIPCL's revenues declined by 6% YoY led by lower generation volumes, which declined by 18% YoY, but increased by 22% on a QoQ basis i.e. in comparison the quarter ended September 2013. While the company did well to keep its plants' availability high at over 90%, it was the actually power off take then led to lower utilisation of these capacities. Particularly at its Vadodara plant's Station II. As per the company, the PLF came in lower due to prolonged backing down as per instruction of the state load dispatch centre given the costly generation and lower demand. PLFs at its Surat units improved on a QoQ basis to about 69% average.

  • At the profit before tax level, GIPCL reported a decline of 18% YoY led by a poor operating performance. Further, higher tax charges led to a sharper decline in profits during 3QFY13.
What to expect?
At the current price of Rs 55, the stock is trading at a multiple of about 0.52 times its FY13 book value per share and at about 0.44 times our estimated FY15 BVPS.

Nothing much has changed for the company in the recent past. It continues to go through a difficult phase on account of its fuel related issues. While GIPCL has signed power purchase agreements for its entire capacity (considering the relatively smaller capacity), which is a positive for the company. What needs to be gauged is development that happens in terms of gas availability and its prices in the coming future. What would also be key is its expansion plans. As the company had indicated recently, it is looking to set up wind power capacity of 300 MW. Currently, the tenders have been floated for the same.

We are of the view that the cheap valuations continue to make the stock attractive. Also, with its dividend yield of about 3.7% (taking the average dividend per share paid out over past nine years), we maintain a 'Hold' view on the stock from a long term perspective.

We would like to reiterate to our subscribers that for the purpose of diversifying risk no stock should form more than 5% of one's portfolio. Please visit our asset allocation page for more details.

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