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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) 1QFY00 1QFY01 Change
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* 25.4 25.1  

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) 1QFY00 1QFY01
EPC, Contracts, Computer Service Income 1,933 436
Cost of materials 1,708 335
Costs/Income 88.3% 76.8%

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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