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Tata Power: OPM gains… - Views on News from Equitymaster
 
 
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  • Jul 22, 2003

    Tata Power: OPM gains…

    Tata Power has reported a 4% topline growth during the June quarter. Continuing with cost efficiencies, operating margins expanded by 270 basis points, resulting in a 19% bottomline growth.

    (Rs m) 1QFY03 1QFY04 Change FY03
    Sales 10,404 10,821 4.0% 43,005
    Other Income 297 242 -18.8% 1,520
    Expenditure 7,923 7,957 0.4% 31,163
    Operating Profit (EBDIT) 2,481 2,864 15.4% 11,842
    Operating Profit Margin (%) 23.8% 26.5%   27.5%
    Interest 718 779 8.5% 3,412
    Depreciation 824 815 -1.0% 3,180
    Profit before Tax 1,237 1,511 22.1% 6,769
    Tax 400 517 29.2% 1,570
    Profit after Tax/(Loss) 837 994 18.8% 5,199
    Net profit margin (%) 8.0% 9.2%   12.1%
    Diluted no. of Shares (eoy) (m) 197.9 197.9   197.9
    Diluted Earnings per share* 16.9 20.1   26.3
    *(annualised)        
    Current P/e ratio   7.0   5.4

    Lower cost of fuel as well as strict control on other expenses was largely responsible for the improvement in operating margins. In FY03 too, Tata Power had expanded its operating margins through cost controls. However, going forward, the YoY effect of margin expansion is likely to fade away. As a result, bottomline growth may not come in as strong in the upcoming quarters.

    Cost break-up
    (Rs m) 1QFY03 1QFY04 Change
    Cost of power purchased 997 1,090 9.4%
    Cost of fuel 5,256 5,183 -1.4%
    Staff cost 351 467 33.1%
    Other expenses 1,319 1,217 -7.8%
    Total 7,923 7,957 0.4%

    In FY03, Tata Power had finished with a 13% topline growth. This growth was aided by addition of new capacities in Jojobera. However, if one looks at the topline growth of Tata Power for the June quarter, it indicates that the phase of capacity addition and hence double digit topline growth, is largely over in the short term. Till the company further expands generation capacity, topline growth trend is unlikely to waver much from the 4% it has reported in the June quarter.

    With the passing of the Electricity Bill recently, Tata Power's path to growth has been strengthened. The company has stake in 1/3rd of Delhi's distribution circle. It has also recently made a foray in transmission business by picking up 51% stake in Tala Delhi Transmission Ltd., a JV with Power Grid Corporation of India. The company has also exited non-core areas like broadband business in Mumbai and is also looking out for a buyer for Tata Petrodyne. It is clear that the company wants to exercise all its resources towards building its power business. At the current market price of Rs 141 the stock is trading at 7x annualised 1QFY04 earnings.

     

     

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