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BSES: Power woes!

Jun 28, 2001

BSES Limited has declared a marginal 4.7% growth YoY in the FY01 bottomline despite a 15% jump in its overall turnover. A 43% jump in cost of electrical energy purchased to Rs 10 bn was largely responsible for the sluggish bottomline growth. BSES buys almost half of its electricity requirement from Tata Power Company, which has seen its fuel costs escalate by 44% in FY01. Tata Power's cost of electricity production has gone up and consequently, the cost of power purchased by BSES has also gone up, in a vicious cycle.

(Rs m) 4QFY00 4QFY01 Change FY00 FY01 Change
Sale of electrical energy 4,921 4,849 -1.5% 19,479 21,584 10.8%
EPC, Contracts, Computer Service Income 704 1,697 141.2% 3,906 5,289 35.4%
Total turnover 5,625 6,546 16.4% 23,385 26,873 14.9%
Other Income 323 176 -45.4% 912 758 -16.9%
Total expenditure 4,127 5,211 26.3% 17,551 21,605 23.1%
Operating Profit (EBDIT) 1,498 1,335 -10.9% 5,834 5,268 -9.7%
Operating Profit Margin (%) 26.6% 20.4%   24.9% 19.6%  
Interest 276 46 -83.3% 942 553 -41.3%
Depreciation 419 524 25.2% 1,835 1,968 7.3%
Profit before Tax 1,126 941 -16.4% 3,968 3,504 -11.7%
Tax 260 -40 -115.2% 900 290 -67.7%
Profit after Tax/(Loss) 866 981 13.2% 3,068 3,214 4.7%
Net profit margin (%) 15.4% 15.0%   13.1% 12.0%  
No. of Shares (eoy) (m) 137.8 137.8   137.8 137.8  
Diluted earnings per share (Rs)       22.3 23.3  
Current P/e ratio         8.4  

The company recorded 11% growth in sale of electricity (in value terms) in FY01. It was the significant 35% jump in BSES's EPC, contracts and computer service income that saved the day. However, in achieving this growth, the direct costs associated with this division rose by nearly 31%.

Power cost blues
(Rs m) FY00 FY01 Change
Cost of power purchased 7,035 10,054 42.9%
Cost of fuel 4,161 3,936 -5.4%
Staff costs 1,039 1,227 18.1%
Cost of materials (EPC, contracts & computer services) 3,450 4,520 31.0%

BSES's bottomline would have shrunk even more had it not been for the taxation benefits it received, which saw taxation provisioning decline by 68%. The company's efforts to reduce its debt servicing costs also aided the company post a positive bottomline growth. BSES has declared a dividend of Rs 4 per share for the year FY01.

The company's ambitious Saphale project in Maharashtra has made no headaway and therefore hinders BSES's future growth from sale of electricity. Given BSES dependence on Tata Power for its electricity requirements it has no real control over those costs.

Added to these, in the dispute of standby charges by the Maharashtra Electricity Regulatory Commission, BSES has deposited an adhoc sum of Rs 540 m on an annualised basis. The concern is that the company has not acknowledged this liability and has made no provisions towards it. One must remember that the decision in this dispute may not be in favour of BSES. The liability, if it arises would erode some value from its balance sheet.

At the current price of Rs 195 the stock trades at a P/E multiple of 8.4 times its FY01 earnings. BSES's results were in line with our projections. We had estimated a turnover growth of 14.5% as against the 14.9% growth achieved by BSES in FY01. In terms of net profit, our projections were little conservative at Rs 3,073 m as against Rs 3,214 m actually achieved.

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