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Guj. Ind. Power: Lower tax benefits hurt profit - Views on News from Equitymaster

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Guj. Ind. Power: Lower tax benefits hurt profit
Jun 26, 2012

Gujarat Industries Power Corp (GIPCL) declared the results for the fourth quarter and financial year 2011-2012 (FY12). The company has reported 20% YoY growth in net sales and 27% YoY drop in net profits for the fiscal. Here is our analysis of the results.

Performance summary
  • Net sales grow by 20% YoY during FY12, despite a fall of 16% in 4QFY12.
  • Operating margins rise to 32.9% during FY12 from 28.2% in FY11 due to higher plant availability factor (PAF) in the gas based power plants in FY12.
  • Despite 40% YoY growth in operating profits, net profits dropped by 27% YoY in FY12. The profits have also fallen on YoY basis in FY12 due to higher interest outgo and lower tax credit than in FY11.

Standalone financial performance
(Rs m) 4QFY11 4QFY12 Change FY11 FY12 Change
Net sales 3,117 2,626 -15.8% 10,779 12,909 19.8%
Expenditure 1,896 1,475 -22.2% 7,743 8,656 11.8%
Operating profit (EBDITA) 1,221 1,151 -5.7% 3,036 4,253 40.1%
EBDITA margin (%) 39.2% 43.8%   28.2% 32.9%  
Other income 58 56 -3.4% 155 149 -3.9%
Depreciation 390 457 17.2% 1,265 1,712 35.3%
Interest 290 365 25.9% 716 1,274 77.9%
Profit before tax 599 385 -35.7% 1,210 1,416 17.0%
Tax (213) 77 -136.2% (419) 232 -155.4%
Effective tax rate   20%     16%  
Profit after tax/(loss) 812 308 -62.1% 1,629 1,184 -27.3%
Net profit margin (%) 26.1% 11.7%   15.1% 9.2%  
No. of shares (m)         151.3  
Diluted earnings per share (Rs)*         7.8  
Price to earnings ratio (x)         8.1  
* On a trailing 12 months basis

What has driven performance in FY12?
  • Gujarat Industries Power Co. Ltd. (GIPCL) reported a 16% YoY fall in net sales during the fourth quarter due to operational failure at one of the lignite based power plants. Despite its power generation remaining flat in terms of number of units, higher tariffs helped the company grow its topline by 20% YoY in FY12. However, the company’s operating margins went up due to lower fuel costs on a YoY basis and higher plant availability factor (PAF) at all units except one of the lignite plants. PAFs were healthy for the remaining plants. Vadodara stations I and II had healthy PAF of 97.3% (94.9% in 4QFY11) and 81.7% (73.9% in 4QFY11), respectively. SLPP I station also operated at high PAFs of 93.2% (70.5% in 4QFY11). Overall PLF for the quarter, however, stood at low 65% due to low offtake from gas-based stations.

  • GIPCL recently expanded its capacity at Surat (Unit 3), while has led to the increase in the company's interest and depreciation charges. Also the YoY rise in tax payouts was higher due to tax credit in the corresponding periods of FY11. GIPCL had debt of almost 0.9 times equity on its books at the end of FY12.

  • The company’s earnings are expected to grow at a faster rate over the next two to three years on the back of full flown operations at Surat (500MW) which had few technical issues in FY12, now resolved.

What to expect?
At the current price of Rs 63, the stock is trading at a multiple of 0.6 times our estimated FY14 book value per share. GIPCL is well placed in terms of fuel security, with the entire fuel requirement of 500 MW SLPP stations I and II met from captive lignite mines. Further, power generated by the company has assured offtake through power purchase agreements signed under the cost-plus model. This ensures RoE of 14% (excluding generation linked incentives) at 75% and 80% PAF for lignite and gas-based plants. We reiterate our positive view on the stock.

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