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BSES: Trips in 4QFY02 - Views on News from Equitymaster
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  • Jun 28, 2002

    BSES: Trips in 4QFY02

    BSES Limited, one of India's premier private utilities, has recorded a slight dip in FY02 operational income. Poor fourth quarter, which saw turnover slide by over 8%, was largely responsible for this. The company finished the quarter with a significant 67% dip in net profit.

    (Rs m) 4QFY01 4QFY02 Change FY01 FY02 Change
    Sale of electrical energy 4,877 4,629 -5.1% 21,738 22,331 2.7%
    Income from EPC, contracts & computer division 1,623 1,333 -17.8% 5,209 4,375 -16.0%
    Total operating income 6,500 5,963 -8.3% 26,947 26,707 -0.9%
    Other Income 382 637 66.7% 838 1,127 34.6%
    Expenditure 5,370 5,386 0.3% 21,759 21,908 0.7%
    Operating Profit (EBDIT) 1,130 577 -48.9% 5,188 4,799 -7.5%
    Operating Profit Margin (%) 17.4% 9.7%   19.3% 18.0%  
    Interest 46 161 249.8% 553 657 18.8%
    Depreciation 524 708 35.0% 1,968 2,251 14.3%
    Profit before Tax 941 345 -63.4% 3,504 3,018 -13.9%
    Tax -40 25 -164.1% 290 211 -27.4%
    Profit after Tax/(Loss) 981 319 -67.4% 3,214 2,808 -12.6%
    Net profit margin (%) 20.1% 6.9%   14.8% 12.6%  
    No. of Shares (eoy) (m) 137.8 137.8   137.8 137.8  
    Diluted Earnings per share* 28.5 9.3   23.3 20.4  
    Current P/e ratio   23.7     10.8  

    The company's income from EPC, contracts and computer division saw an 18% dip during the quarter, thus effecting overall turnover growth. The expenses relating to this division dipped by 36%. However, the overall costs could not mirror the fall in revenues and hence, operating margins dipped sharply to under 10% during the quarter. Both interest and depreciation saw a considerable surge pruning bottomline. Infact, had it not been for higher other income, BSES would have finished the quarter with a loss.

    On the back of these poor March quarter numbers, BSES's overall FY02 performance suffered and the company registered a 13% dip in bottomline. Operating margins dipped to 18% from over 19% last year. Higher depreciation and interest figured again in the overall FY02 numbers. Higher other income prevented a further slide.

    The company's press release doesn't mention the number of units of electicity sold during the year. Till the first nine months of FY02 (April-December 2001), BSES generated 2855 million units, up by nearly 7% YoY. However, it actually sold 4377 million units during the period, a growth of over 4% YoY. The shortfall in electricity (1522 MUs) is likely to have been bought from Tata Power. BSES's offtake from Tata Power has seen a marginal decline during 9m FY02. We will update these numbers once we get a confirmation from the company.

    Cost break-up
    (Rs m) 4QFY01 4QFY02 Change FY01 FY02 Change
    Cost of energy purchased 1,876 1,872 -0.2% 10,054 9,918 -1.4%
    Cost of fuel 996 1,067 7.1% 3,936 4,222 7.3%
    Costs related to EPC and others 1,330 853 -35.9% 4,520 3,486 -22.9%
    Tax on electricity 154 94 -39.2% 154 426 176.7%
    Staff cost 411 306 -25.6% 1,227 1,129 -8.0%
    Other expenses 602 1,195 98.4% 1,869 2,727 45.9%
    Total expenditure 5,370 5,386 0.3% 21,759 21,908 0.7%

    The degrowth in EPC income during FY02 has hit BSES's growth. Another concern in the lacklustre growth in sale of electrical energy. BSES seems to have reached a plateau, as far as income from sale of electricity is concerned. Its Dhanau plant is working at optimal capacity, but beyond that there seems no scope for growth in Maharashtra atleast. The company's Saphale project is on a backburner. Its Orissa venture is in losses, atleast for the time being. It would take atleast 2 years for this business to break-even. BSES has recently bagged 2 out of 3 distribution circles in Delhi.

    Moreover, the sword of the standby charges dispute hangs over the company. The company has so far deposited Rs 865 m with the MERC over standby charges dispute with Tata Power. It is slated to deposit another Rs 325.6 m with MERC. It must be noted that BSES has designated this total charge as deposits with MERC. If the ruling is not in favour of BSES, then it would have to write off these deposits, thus affecting future bottomline. However, BSES has made a provision of Rs 950 m for certain future contingencies in FY02, which should negate the risk to some extent.

    However, despite these short term negatives, the company has earmarked an ambitious Vision 2012. As per this, BSES is targeting an aggregate capacity of 9,000 MW by 2012. It is also looking at becoming a developer in at least three transmission circles and acquiring 6 distribution circles by 2012. Given Reliance's interest (over 36% stake) in the company, BSES is likely to achieve these targets, organically or inorganically.

    Over the long term, growth will come through with capacity addition. At Rs 220 the stock trades at 11x FY02 earnings. Given poor 4QFY02 performance, the stock may come under pressure in the short term.



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