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TEC: Due for re-rating? - Views on News from Equitymaster
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  • Jun 21, 2000

    TEC: Due for re-rating?

    Both Tata Electric Companies (TEC) and BSES are India’s top utility companies. Until now BSES has received a premium valuations compared to TEC on account of its aggressive and focused management and also because of its much talked about Internet plans.

    But TEC just might start playing catch up. For one, the Tata Group has finally decided to merge its 3 TEC companies as one single entity. This will definitely lend more focus to the management. Both companies have aggressive investment plans not only for power generation and distribution, but also on laying broadband networks and Internet strategies. While TEC has planned a capital investment to the tune of Rs 2.6 bn by 2003, BSES at an investment of approximately Rs 4.3 bn over the same period.

    (Rs m) TEC BSES TEC / BSES
    Sales 27,811.3 23,384.4 1.2
    Other Income 3,647.8 911.9 4.0
    Expenditure 20,726.1 17,550.7 1.2
    Operating Profit (EBDIT) 7,085.2 5,833.7 1.2
    Operating Profit Margin (%) 25.5% 24.9% 1.0
    Interest 2,079.9 942.4 2.2
    Depreciation 2,018.1 1,834.7 1.1
    Profit before Tax 6,635.0 3,968.5 1.7
    Tax 1,948.6 900.3 2.2
    Profit after Tax 4,686.4 3,068.2 1.5
    Net profit margin (%) 16.9% 13.1%  
    Earnings per share 20.8 22.3  
    P/E Ratio 3.8 12.1  
    Market Price 79.0* 269.5  

    * signifies indicative price of the merged entity

    A look at both companies’ financials for FY2000 reveals that TEC earns better margins but lags behind BSES in terms of earning per share. But look at the price to earnings ratio (P/E ratio) and you would wonder that either the markets have overvalued BSES or TEC is undervalued. The latter seems more likely. So any takers?



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