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BSES: Other income fillip

Aug 6, 2003

BSES (now renamed Reliance Energy) has posted around 6% growth in its core business of selling electricity and a sizeable growth of above 50% in the income from EPC, contracts and computer division, finally resulting in around 10% growth in total operating income. Though the operating profits for the quarter took a dip, a huge increase in other income helped the company post a little above 4% increase in net profits.

(Rs m) 1QFY03 1QFY04 Change
Sale of electrical energy 6,196 6513 5.1%
Income from EPC, contracts      
& computer division 752 1,124 49.5%
Total operating income 6,948 7,637 9.9%
Other Income 101 403 299.3%
Expenditure 5,398 6,365 17.9%
Operating Profit (EBDIT) 1,550 1,272 -17.9%
Operating Profit Margin (%) 22.3% 16.7%  
Interest 160 104 -35.3%
Depreciation 586 650 10.9%
Profit before Tax 905 922 1.8%
Tax 58 39 -32.6%
Profit after Tax/(Loss) 847 883 4.2%
Net profit margin (%) 12.2% 11.6%  
No. of Shares (eoy) (m) 137.8 137.8  
Diluted Earnings per share* 24.6 25.6  
*(annualised)      
Current P/E ratio   11.2  

The operating profit margins came down by 570 basis points due to a substantial increase in expenses. The break-up of the expenditure shows that this increase in costs is led by costs related to EPC and provisions made. Though company has made a provision of Rs 580 m for future contingencies, it must be noted that the issue of standby charges with Tata Power is still unresolved. If the decision goes against Reliance Energy, the company may have to cough up a significant amount.

(Rs m) 1QFY03 1QFY04 Change
Cost of energy purchased 2,845 2,814 -1.1%
Cost of fuel 1,116 1,124 0.8%
Costs related to EPC and others 628 978 55.8%
Tax on electricity 115 120 4.5%
Staff cost 268 279 4.2%
Other expenses 426 1,049 146.2%
Total expenditure 5,398 6,365 17.9%

The segmental break-up shows that the electrical energy business contributed to around 85% of the revenues. Due to the reduction in the cost of energy purchased, the PBIT contribution improved significantly and grew by 21%. The PBIT margins also improved by 300 basis points. EPC contracts contribute around 15% of total revenues and the revenues from the segment grew 52% YoY. The PBIT contributions and margins of the business have come down because of increase in costs related to EPC.

Electrical Energy 1QFY03 1QFY04 Change
Net sales 621 655 5.5%
PBIT contribution 101 122 21%
PBIT margin 16% 19%  
EPC and Contracts      
Net sales 74 112 51.4%
PBIT contribution 6 5 -16.7%
PBIT margin 8% 4%  
Others      
Net sales 1 3 200.0%
PBIT contribution 0 1  

The company’s Orissa distribution venture is still giving it sleepless nights. The losses of these distribution companies have eroded their net worth, which is being considered to be of permanent nature at this stage. Though the Kerala plant has restarted its operations, it still has to recover dues from the Kerala State Electricity Board. The company has plans to up its generation capacity to 9,000 MW and have distribution operations in six states by 2012. At the current price of Rs 287, the stock trades at a P/E multiple of 11.2x annualised 1QFY04 earnings. The valuation looks steeper as compared to its peer Tata Power Company.


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