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.
Sale of electrical energy
Income from EPC, contracts & computer division
Total operating income
Operating Profit (EBDIT)
Operating Profit Margin (%)
Profit before Tax
Profit after Tax/(Loss)
Net profit margin (%)
No. of Shares (eoy) (m)
Diluted Earnings per share*
Current P/e ratio
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 of energy purchased
Cost of fuel
Costs related to EPC and others
Tax on electricity
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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