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Tata Power: FY01 a curtain raiser - Views on News from Equitymaster
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  • Jun 20, 2001

    Tata Power: FY01 a curtain raiser

    Tata Power is set ot declare its annual results today. If one were to look at its last nine month's performance one can easily guage that its FY01 annual performance is unlikely to be any different.

    (Rs m) 3QFY00 3QFY01 Change 9m FY00 9m FY01 Change
    Sales 7,479 8,846 18.3% 20,608 26,835 30.2%
    Other Income 809 381 -52.9% 2,518 2,032 -19.3%
    Total expenditure 5,670 6,988 23.3% 15,593 21,249 36.3%
    Operating Profit (EBDIT) 1,809 1,858 2.7% 5,015 5,586 11.4%
    Operating Profit Margin (%) 24.2% 21.0%   24.3% 20.8%  
    Interest 482 585 21.3% 1,469 1,545 5.2%
    Depreciation 505 512 1.2% 1,516 1,535 1.3%
    Profit before Tax 1,630 1,142 -29.9% 4,547 4,539 -0.2%
    Tax 625 127 -79.7% 1,472 1,313 -10.8%
    Profit after Tax/(Loss) 1,005 1,016 1.0% 3,076 3,225 4.9%
    Net profit margin (%) 13.4% 11.5%   14.9% 12.0%  
    No. of Shares (eoy) (m) 115.6 197.9   115.6 197.9  
    Diluted no. of shares outstanding (m) 197.9 197.9   197.9 197.9  
    Earnings per share*       20.7 21.7  
    Current P/e ratio         6.2  

    On a nine month consolidated basis, Tata Power's turnover had surged 30% YoY. But a 36% jump in expenditure has resulted in the company declaring only a 5% growth in its bottomline. On a nine month basis, the tax provisioning was down by a marginal 11% (unlike its 3QFY01).

    The surge in expenditure was largely on account of a huge jump in its fuel costs (during the first half of FY01 the company's fuel cost had jumped 77%). The company's profit before tax had actually declined marginally, but an 11% decline in the company's tax provisioning helped Tata Power post a 5% growth in bottomline.

    The erstwhile 3 Tata Electric Companies, i.e. Andhra Valley, Tata Hydro-Electric and Tata Power, were recently merged into one single entity under Tata Power. In effect, Tata Power is the new name of the merged Tata Electric Companies. For making the results comparable, we have taken the previous year figures of the erswhile 3 Tata Electric Companies and merged them.

    Tata Power is likely to declare a around 29% jump in its FY01 turnover and show a marginal jump in its bottomline as per our estimations. Fuel costs are likely to be Tata Power's bane. The company will also get marred by a lower other income. However, the company will enjoy the benefits of lower tax provisioning.

    To control its fuel costs, Tata Electric has decided to invest a Rs 5.5 bn in setting up an LNG Terminal and jetty. This move should improve margins when the terminal comes up. Till then, the company's profitability will continue to be adversely affected by rising fuel prices.

    At the current price of Rs 135 the stock trades at a P/E multiple of 6.2 times its nine month FY01 annualised earnings. The company's market cap to sales ratio is around 0.75. The valuations have held steady in the past couple of months for Tata Power. Given the capital intensive nature of the business it is only natural that the company takes some time to get the returns it desires. But the important thing is that the company is the lowest cost private producer of power and is looking at avenues other than Mumbai to expand base. Given the power shortage in India, one can expect Tata Power to be where the action is. But let us remind ourselves that the company has a long history of being slow moving on execution and that might take some time to change.



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