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Tata Power: Lower taxes spur profits

May 25, 2010

Tata Power has announced its FY10 results. On a consolidated basis, the company has reported a 5% YoY growth in sales and 61% YoY growth in net profits. Here is our analysis of the results.

Performance summary
  • Standalone sales fall by 2% YoY during FY10. Consolidated sales up 5% YoY.
  • Operating margins rise sharply to 26.2% in FY10 for the standalone entity. For the consolidated business, margins improve to 20.2% led by lower fuel costs (as percentage of sales).
  • Consolidated net profits grow by 61% YoY during FY10, chiefly aided by lower taxes.
  • Declares a dividend of Rs 12 per share (dividend yield of 1%).

Financial performance snapshot
(Rs m) FY09 FY10 Change FY09 FY10 Change
Power generation (m units) 14,807 15,946 7.7% NA NA  
Units sold (m units) 14,703 15,574 5.9% NA NA  
Net sales 72,362 70,983 -1.9% 180,613 189,858 5.1%
Expenditure 61,173 52,360 -14.4% 145,158 151,506 4.4%
Operating profit (EBDITA) 11,190 18,623 66.4% 35,455 38,353 8.2%
Operating profit margin (%) 15.5% 26.2%   19.6% 20.2%  
Other income 6,324 2,816 -55.5% 5,639 5,889 4.4%
Interest 3,058 4,066 33.0% 7,087 7,639 7.8%
Depreciation 3,289 4,779 45.3% 9,369 8,930 -4.7%
Profit before tax 11,167 12,593 12.8% 24,638 27,673 12.3%
Tax 1,945 3,205 64.8% 11,651 6,287 -46.0%
Share of profit of associates NA NA   276 617 123.7%
Minority interest NA NA   1,076 2,335 117.1%
Profit after tax/(loss) 9,222 9,388 1.8% 12,187 19,669 61.4%
Net profit margin (%) 12.7% 13.2%   6.7% 10.4%  
No. of shares       221.4 237.3  
Diluted earnings per share (Rs)         82.9  
P/E ratio (x)         14.5  
NA-Not applicable            

What has driven performance in FY10?
  • Despite a 6% YoY growth in volume sales of electricity, Tata Power saw its standalone sales (in value terms) decline by 2% YoY during FY10. The company has attributed this to lower power tariffs, which were a result of lower fuel costs (as the company has to pass on lower costs to customers in terms of lower tariffs). The company also produced more power using gas this quarter (as against oil), which led to lower fuel costs and subsequently lower tariffs. Its generation capacity stood at over 2,900 MW at the end of March 2010.

  • As for the consolidated business, sales were up 5% YoY during the year. This was led by a 5% YoY growth in the power business (66% of total sales) and 6% YoY growth in the coal mining business (30% of total sales). As per the management, growth in the coal mining business was largely on the back of higher production, which was up 25% YoY. This was however countered by a 23% YoY decline in coal realisation.

  • On the back of lower fuel costs, Tata Power managed to improve its margins to 20.2% FY10. Fuel costs were at 25% of consolidated sales during the year, as compared to 31% in FY09. Led by higher operating margins and a sharp 46% YoY fall in tax charges, Tata Power’s consolidated net profits rose 61% YoY during FY10.

What to expect?
At the current price of Rs 1,200, the stock is trading at a multiple of 2.1 times our estimated FY12 book value per share. The company’s consolidated sales for FY10 have come in 4% lower than our estimates. However, its net profits are higher by 24% as against our estimates. This is due to lower than estimated tax charges.

The management has indicated during the conference call that its capacity expansion programmes at Mundra (4,000 MW) and Maithon (1,050 MW in 74:26 joint venture with Damodar Valley Corp.) are progressing as per schedule. The ultra-mega project at Mundra is in fact 52% complete. The company’s expects the first unit to become operational by September 2011. We will soon rework our forward estimates for the company and update you with our latest view on the stock.

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