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BSES: Tearful FY03

Apr 21, 2003

BSES, one of India's leading private utilities, has had a somewhat lacklustre FY03. The company finished the year with over 3% growth is sale of electrical energy. This is much lower than its past average of over 4% growth in the last 4-5 years. However, a 25% dip in its other income, as well as over 15% increase in both interest burden and depreciation provisioning has resulted in over 42% fall in the company's FY03 net profits.

(Rs m) 4QFY02 4QFY03 Change FY02 FY03 Change
Sale of electrical energy 4,629 4,687 1.3% 22,331 23,033 3.1%
Income from EPC, contracts & computer division 1,326 1,430 7.9% 4,368 3,885 -11.1%
Total operating income 5,955 6,118 2.7% 26,699 26,919 0.8%
Other Income 637 351 -44.9% 1,127 849 -24.7%
Expenditure 5,379 5,555 3.3% 21,901 22,879 4.5%
Operating Profit (EBDIT) 577 562 -2.5% 4,799 4,040 -15.8%
Operating Profit Margin (%) 9.7% 9.2%   18.0% 15.0%  
Interest 161 244 51.4% 657 764 16.1%
Depreciation 708 644 -9.0% 2,251 2,598 15.4%
Profit before Tax 345 26 -92.6% 3,018 1,526 -49.4%
Tax 25 -225 -986.2% 211 -97 -145.9%
Profit after Tax/(Loss) 319 251 -21.5% 2,807 1,623 -42.2%
Net profit margin (%) 6.9% 5.3%   12.6% 7.0%  
No. of Shares (eoy) (m) 137.8 137.8   137.8 137.8  
Diluted Earnings per share* 9.3 7.3   20.4 11.8  
Current P/e ratio   30.5     18.8  

The company's release states that in FY03, BSES has discontinued its previous policy of raising bills on customers on an estimated/provisional basis in cases where meter readings were not available. This change has resulted in withdrawals of bills aggregating Rs 1,350 m raised in past periods. Excluding this change in billing policy overall revenues would have shown an increase of 5% YoY and profits would have been at Rs 2,970 m (an increase of 6%).

The company generated 3,965 million units (MUs) during FY03 (an increase of 3.1% YoY), and sold 5,880 MUs (up 3.6% YoY). In the fourth quarter (i.e. March quarter), while sales of electrical energy is up marginally by over 1%, EPC business is up by an encouraging 7%.

Power stats...
(MUs) FY02 FY03 Change
Generation 3847 3965 3.1%
Sale of electricity 5676 5880 3.6%
Bought from Tata Power 1829 1915 4.7%

BSES's problems continued to grow in FY03. On the one hand, the company's growth in the Mumbai circle is pegged at only 4% per annum, its EPC and contracts business is too volatile for comfort. Right now, it is only earning from the Mumbai circle and its distribution ventures in Orrisa and Delhi are currently in the red. Infact, in its release, the company has mentioned that the networth of its Orrisa venture has eroded. Its generation business in Kerala too is in losses. However, the encouraging aspect is that the Kerala plant has been restarted in December end, after remaining closed from October 2001 over non payment of outstanding dues by Kerala State Electricity Board (KSEB). Also, the MERC order over standby charges to Tata Power continues to hang in fire. Though in the long term, BSES's investments in Kerala, Orrisa and Delhi are likely to bear fruit, in the short term the paucity of returns from these investments in hitting the company's operating performance.

In order to improve its financial picture, the new management (Reliance group) decided to hive off BSES's subsidiaries. BSES Andhra Power, BSES Kerala Power, BSES Rajdhani Power, BSES Yamuna Power Ltd, the 3 Orrisa distribution circle companies and Tamil Nadu Industries Captive Power Company have ceased to be subsidiaries of the company with effect from March 29, 2003. So FY04 is likely to paint a better picture for the company.

Cost break-up
(Rs m) 4QFY02 4QFY03 Change FY02 FY03 Change
Cost of energy purchased 1,872 2,272 21.4% 9,918 11,329 14.2%
Cost of fuel 1,067 1,098 2.9% 4,222 4,299 1.8%
Costs related to EPC and others 853 1,075 26.0% 3,486 3,092 -11.3%
Tax on electricity 94 56 -39.8% 426 372 -12.5%
Staff cost 331 311 -5.9% 1,154 1,100 -4.7%
Other expenses 1,163 744 -36.0% 2,696 2,686 -0.3%
Total expenditure 5,379 5,555 3.3% 21,901 22,879 4.5%

The fact that the Reliance group has formally taken over the management control of the company is encouraging from the long term perspective. The group's technical and financial strengths will aid the company in achieving its stated vision of 9,000 MW electricity generation by 2012 (currently 885 MW). The new management has hinted that BSES is likely to be their vehicle for power and EPC led forays.

At Rs 222 the stock currently trades at 18.8x FY03 earnings. The stock has been range bound in the last six months despite the poor performance. Investors continue to hold the stock largely owing to the Reliance management's grand plans for the company, as well as the fact that in FY04 the company will start on a clean slate, without the baggage of its loss making erstwhile subsidiaries. We will have to wait and see how this pans out before we make a call on the stock.

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