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BSES: Other income blues… - Views on News from Equitymaster
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  • Jul 30, 2002

    BSES: Other income blues…

    BSES Limited, one of the foremost private players in the power sector, has logged in a 7% growth in its core business of selling electricity during 1QFY03. However, a staid growth in income from EPC, contracts and comptuer division resulted in a just over 6% growth in operational income. Lower other income was largely responsible for nearly 5% dip in bottomline during the quarter.

    (Rs m) 1QFY02 1QFY03 Change
    Sale of electrical energy 5,793 6,196 7.0%
    Income from EPC, contracts
    & computer division
    747 752 0.6%
    Total operating income 6,540 6,948 6.2%
    Other Income 176 101 -42.8%
    Expenditure 5,086 5,398 6.2%
    Operating Profit (EBDIT) 1,454 1,550 6.6%
    Operating Profit Margin (%) 22.2% 22.3%  
    Interest 163 160 -2.3%
    Depreciation 508 586 15.3%
    Profit before Tax 959 905 -5.6%
    Tax 70 58 -16.7%
    Profit after Tax/(Loss) 889 847 -4.7%
    Net profit margin (%) 15.3% 13.7%  
    No. of Shares (eoy) (m) 137.8 137.8  
    Diluted Earnings per share* 25.8 24.6  
    Current P/e ratio   8.3  

    In terms of volumes, the company sold 1,588 MUs of electrical energy during the quarter (up 7.5% YoY). In terms of realisations, BSES sold these units at approximately Rs 3.90 per unit as compared to Rs 3.92 per unit in 1QFY02. Despite this, the company's operating margins more or less were steady at 22.3% during the quarter. Higher depreciation and lower other income (likely due to fall in interest rates) were largely the reasons for the dip in bottomline.

    BSES had reported Rs 996 m as net profit last year for the June quarter. The company has restated its expenditure since then, by including Rs 118 m as tax on electricity, which was not accounted for during June quarter 2001.

    Cost break-up
    (Rs m) 1QFY02 1QFY03 Change
    Cost of energy purchased 2,499 2,845 13.8%
    Cost of fuel 1,133 1,116 -1.5%
    Costs related to EPC and others 554 628 13.4%
    Tax on electricity 118 115 -2.0%
    Staff cost 240 268 11.6%
    Other expenses 542 426 -21.3%
    Total expenditure 5,086 5,398 6.2%

    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 recently. The company has invested in 51% each in both Central East Delhi Electricity Distribution Company Ltd. (Rs 592 m) and South West Delhi Electricity Distribution Company Ltd. (Rs 23,460 m) and has management control of both the distribution companies.

    Moreover, the sword of the standby charges dispute hangs over the company. The company has so far deposited Rs 1,120 m with the MERC over stand by charges dispute with Tata Power (Rs 143 m in 1QFY03). 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 had 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 (nearly 39% 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 204 the stock trades at 8.3x annualised 1QFY03 earnings. BSES is a long term story and hence, is likely to see steady growth in line with its topline (capacity) improvement going forward.



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