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Guj. Ind. Power: Gas prices dampen profits - Views on News from Equitymaster

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Guj. Ind. Power: Gas prices dampen profits

Apr 5, 2012

Gujarat Industries Power Corp (GIPCL) declared the results for the third quarter and first nine months of financial year 2011-2012 (9mFY12). The company has reported 34% YoY growth in net sales and 7.2% YoY growth in net profits for the nine month period. Here is our analysis of the results.

Performance summary
  • Sales grow by 27% YoY during 3QFY12, 34% YoY during the nine-month period (9mFY12).
  • Operating margins rise to 30.2% during the nine month period. However, higher gas prices impact operating margins for the third quarter.
  • Despite 71% YoY growth in operating profits, net profits grow by a marginal 7.2% YoY in 9mFY12. The profits have also fallen on YoY basis due to tax credit in the corresponding periods of FY11.


Standalone financial performance
(Rs m) 3QFY11 3QFY12 Change 9mFY11 9mFY12 Change
Net sales 3,053 3,877 27.0% 7,662 10,283 34.2%
Expenditure 2,259 2,963 31.2% 5,846 7,180 22.8%
Operating profit (EBDITA) 794 914 15.1% 1,816 3,103 70.9%
EBDITA margin (%) 26.0% 23.6%   23.7% 30.2%  
Other income 26 32 23.1% 97 92 -5.2%
Depreciation 388 420 8.2% 876 1,255 43.3%
Interest 266 296 11.3% 425 909 113.9%
Profit before tax 166 230 38.6% 612 1,031 68.5%
Tax (78) 61 -178.2% (205) 155 -175.6%
Effective tax rate   27%     15%  
Profit after tax/(loss) 244 169 -30.7% 817 876 7.2%
Net profit margin (%) 8.0% 4.4%   10.7% 8.5%  
No. of shares (m)         151.3  
Diluted earnings per share (Rs)*         11.1  
Price to earnings ratio (x)         6.2  
(*On a trailing 12-month basis)

What has driven performance in 9mFY12?
  • Gujarat Industries Power Co. Ltd. (GIPCL) reported a good 27% YoY growth in net sales during the quarter. This was largely a result of higher power tariffs, even as its power generation remained flat YoY at 1,181 MU, while fuel cost rose by 34.1% on account of higher gas prices. Overall PLF for the quarter stood at low 67% due to low offtake from gas-based stations because of higher power cost on account of expensive gas prices. Led by rise in fuel costs, GIPCL recorded drop in its operating margins during 3QFY12. Margins stood at 23.6% during the quarter, as against 26% in 3QFY11.

  • Lower-than-expected performance was on account of low plant availability factor in Surat Lignite Power Project (SLPP) station II, which had technical problems. Expensive gas led to a decline in PLF for gas-based plants, resulting in lower generation-linked incentives.

  • GIPCL recently expanded its capacity at Surat (Unit 3), while has led to the increase in the company's interest and depreciation charges. Also the YoY rise in tax payouts was higher due to tax credit in the corresponding periods of FY11.

What to expect?
At the current price of Rs 69, the stock is trading at a multiple of 0.7 times our estimated FY14 book value per share. 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 power purchase agreements signed under the cost-plus model. This ensures RoE of 14% (excluding generation linked incentives) at 75% and 80% PAF for lignite and gas-based plants. We reiterate our positive view on the stock.

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