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Tata Power: Margin strength… - Views on News from Equitymaster
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Tata Power: Margin strength…
May 28, 2003

Tata Power Limited has reported strong numbers for the March quarter. We have not received the company's release on the results as yet, and the YoY comparision is solely based on last year's stated figures. The company's income from operations is up nearly 9%. But owing to cost efficiencies, operating profits were up a healthy 39% during the quarter.However, profit comparision and operating profit margin comparision depicted below is largely correct.

(Rs m) 4QFY02 4QFY03 Change FY02 FY03 Change
Sales 8,357 9,101 8.9% 38,018 43,005 13.1%
Other Income 700 332 -52.5% 2,639 1,520 -42.4%
Expenditure 6,504 6,563 0.9% 29,050 31,163 7.3%
Operating Profit (EBDIT) 1,853 2,538 37.0% 8,967 11,842 32.1%
Operating Profit Margin (%) 22.2% 27.9%   23.6% 27.5%  
Interest 775 732 -5.6% 2,986 3,412 14.3%
Depreciation 715 745 4.2% 2,817 3,180 12.9%
Profit before Tax 1,063 1,394 31.2% 5,804 6,769 16.6%
Extraordinary income 30 0 - 914 0 -
Tax 414 -159 -138.4% 1,636 1,570 -4.0%
Profit after Tax/(Loss) 679 1,553 128.8% 5,082 5,199 2.3%
Net profit margin (%) 8.1% 17.1%   13.4% 12.1%  
Diluted no. of Shares (eoy) (m) 197.9 197.9   197.9 197.9  
Diluted Earnings per share* 13.7 31.4   25.7 26.3  
*(annualised)            
Current P/e ratio   4.2     5.0  

The company's operating margins have shot up to nearly 28% in the March quarter (from 22.2% in 4QFY02). A tax write back of Rs 159 m during March quarter has also added to the bottomline growth, which has grown by a strong 129% YoY. This performance is commendable in light of the significant 53% dip in other income of the company. On a consolidated basis, Tata Power has posted a lower net profit of Rs 3,248 m in FY03 (down 33% YoY).

For the full year FY03, income from operations seems up over 13%, and similar to the March quarter performance, operating margins have strengthened to nearly 28% led by lower growth in expenses. Other income was a spoilsport for the full year too, as it dipped 42% in FY03. Despite this, Tata Power has finished FY03 with a 24% growth in profits (excluding extraordinary income). The company had earned Rs 914 m as extraordinary income last year owing profit on sale of long term investments like stake sale in Tata Liebert, Tata BP Lubricants and units of US-64 scheme.

Cost break-up
(Rs m) 4QFY02 4QFY03 Change FY02 FY03 Change
Cost of power purchased 1,005 1,002 -0.3% 3,992 4,069 1.9%
Cost of fuel 3,513 3,805 8.3% 17,683 20,626 16.6%
Staff cost 326 456 39.7% 1,367 1,420 3.8%
Other expenses 1,660 1,300 -21.7% 6,008 5,049 -16.0%
Total 6,504 6,563 0.9% 29,050 31,163 7.3%

Our estimates for Tata Power in terms of topline growth were largely correct. Our FY03 sales projection stood at Rs 42.8 bn (as compared to Rs 43 bn actual). However, we had not anticipated such sharp jump in operating margins (our estimates were at 25.4% as compared to nearly 28% reported). Consequently, our earnings estimate proved to be conservative as compared to actual reported numbers.

At the current price of 132 the stock trades at 5x FY03 standalone earnings. However, on a consolidated basis, the valuations stands at 8x FY03 earnings. We will put up a detailed analysis of the results soon.

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