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BSES 1Q: EPC plays spoilsport

Jul 24, 2000

BSES's (one of India's largest power generation and retail distribution company) profitability took a beating in the first quarter of 2001 as compared to 1QFY2000. Though the company's core business (sale of electricity) recorded a 16% growth, but its EPC (Engineering, Procurement and Construction), contracts and computer division income took a 77% hit. The result was a marginal 1% decline in the net profit of 1QFY2001.

(Rs m)1QFY001QFY01Change
Sale of electrical energy 4,701 5,443 15.8%
EPC, Contracts, Computer Service Income 1,933 436 -77.4%
Other Income 264 265 0.4%
Expenditure 5,087 4,429 -12.9%
Operating Profit (EBDIT) 1,547 1,450 -6.3%
Operating Profit Margin (%)23.3%24.7%
Interest 242 176 -27.6%
Depreciation 473 475 0.5%
Profit before Tax 1,096 1,064 -2.9%
Tax 220 200 -9.1%
Profit after Tax/(Loss) 876 864 -1.4%
Net profit margin (%)18.6%15.9%
No. of Shares (eoy) (m) 137.8 137.8
Earnings per share*25.425.1

Another reason for this decline was a significant 45% jump in the cost of electrical energy purchased (Rs 2,450 m in 1QFY2001). The cost of fuel also inflated by 5%.

The company had prepaid about Rs 1,202 m term loans just before its FY2000 results, with a view to reduce its interest burden. The strategy seems to have worked in 1QFY2001 as the interest outgo declined by 28%.

The company has no doubt increased its efficiencies in the power generation and distribution business, but its EPC business becomes a drag on its overall business. The EPC divisions' cost to income ratio (excluding staff costs) is a whopping 77% in 1QFY2001. BSES certainly needs to tighten its focus here.

EPC, Contracts, Computer Service business
(Rs m)1QFY001QFY01
EPC, Contracts, Computer Service Income 1,933 436
Cost of materials 1,708 335

Interestingly, the company's EPC division played spoilsport in BSES's annual results also. In FY2000, its EPC division income declined by 22% compared to FY99. Its fuel costs and cost of electrical energy were also up during FY2000.

The stock trades at a P/E multiple of 9.6 times its FY2001 annualised earnings.

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Dec 9, 2021 03:37 PM


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