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Guj. Ind. Power: Higher capacity boosts profits
Mar 26, 2013

Gujarat Industries Power Corp (GIPCL) declared the results for the quarter ended December 2012. The company has reported 4.8% YoY decline in revenues but a 315% YoY rise in profits during the quarter. Here is our analysis of the results.

Performance summary
  • Net sales decline by 5% YoY during 3QFY13 despite a 6.8% YoY increase in generation volumes.
  • Operating margins rise to 37.5% during 3QFY13 from 24.2% in 3QFY12 due to factors such as higher plant availability factor (PAF) and lower fuel prices.
  • A strong operating performance coupled with lower depreciation, interest and tax charges lead to a strong 315% YoY increase in profits.
  • During 9mFY13, the company's revenues and profits increase by 5% YoY and 79% YoY respectively.

Standalone financial performance
(Rs m) 3QFY12 3QFY13 Change 9mFY12 9mFY13 Change
Net sales 3,906 3,720 -4.8% 10,347 10,852 4.9%
Expenditure 2,960 2,326 -21.4% 7,173 6,793 -5.3%
Operating profit (EBDITA) 945 1,394 47.4% 3,174 4,058 27.9%
EBDITA margin (%) 24.2% 37.5%   30.7% 37.4%  
Other income 4 21 422.0% 30 89 201.7%
Depreciation 420 398 -5.1% 1,255 1,218 -3.0%
Interest 300 252 -16.0%  917  798 -13.0%
Exceptional items -  -    -  602  
Profit before tax 229 765 233.3% 1,032 2,734 165.0%
Tax 61 65    155 1,164 649.3%
Effective tax rate 27% 9%   15% 43%  
Profit after tax/(loss) 169 699 315.0%  877 1,571 79.2%
Net profit margin (%) 4.3% 18.8%   8.5% 14.5%  
No. of shares (m)         151.3  
Diluted earnings per share (Rs)*         9.0  
Price to earnings ratio (x)         8.2  
(*On a trailing 12-month basis)

What has driven performance in 9mFY13?
  • Despite an 8% YoY increase in generation volumes, Gujarat Industries Power Co. Ltd's (GIPCL) revenues increased by less than 5% YoY during 9mFY13. This is seemingly on the back of the company passing on lower fuel costs to its customers, leading to a relatively slower growth in revenues. The company's operating margins went up due to lower fuel costs on a YoY basis and higher average plant availability factor (PAF) across all units.

    Barring the two Vadodara stations - I and II, which saw a marginal decline in both PLF and plant availability factors (PAFs), all four units of the company's SLPP plant witnessed higher PAFs and PLFs. Vadodara stations I and II operated at PAF of 92.15% (97.88% in 3QFY12) and 92.52% (94.95% in 3QFY12), respectively. SLPP I and II stations operated at PAFs of 91.13% (84.13% in 3QFY12) and 89.36% (67.15% in 3QFY12) respectively.

    It may be noted that GIPCL recently expanded its capacity at Surat (Unit 3), which had led to the increase in the company's interest and depreciation charges in FY12. The plant has been commissioned and generated power to the tune of 2.1 MU during 3QFY13 and 5.27 MU during 9mFY13. GIPCL had debt of almost 0.9 times equity on its books at the end of FY12.

  • At the operating level, operating profits of the company declined by 5.8% YoY. Operating margins of the company declined by 5% YoY. Welfare expenses more than doubled YoY from Rs 3.6 bn to Rs 7.3 bn, whereas contractual expenses, other expenses and over burden adjustments increased 19.2%, 58.4% and 19.2% YoY, respectively.

  • The company's earnings are expected to grow at a faster rate over the next two to three years on the back of full flown operations at Surat (500 MW) which had few technical issues in FY12, now resolved.

  • GIPCL is well placed in terms of fuel security, with the entire fuel requirement of 500 MW SLPP stations I and II met from captive lignite mines. Further, power generated by the company has assured offtake through PPAs signed under the cost-plus model, ensuring RoE of 14% (excl. generation linked incentives) at 75% and 80% PAF for lignite and gas-based plants. However the volatile gas prices are a short term concern. This is a key reason why the company's off-take remained lower at its Vadodara plant.

What to expect?

At the current price of Rs 74, the stock is trading at a multiple of 0.61 times our estimated FY15 book value per share. While we draw comfort from GIPCL's fuel security, higher plant availability and fuel supply agreements, volatility in fuel prices is a concern. Moreover, very limited communication from the management about the company's long term plans has kept the stock from being re-rated despite better fundamentals. The high dividend yield on the stock (currently 3.4%) is an additional sweetener. We reiterate our Buy view on the stock.

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