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Guj. Ind. Power: Annual maintenance mars performance - Views on News from Equitymaster
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  • Aug 14, 2013 - Guj. Ind. Power: Annual maintenance mars performance

Guj. Ind. Power: Annual maintenance mars performance
Aug 14, 2013

Gujarat Industries Power Corp (GIPCL) declared the results for the quarter ended June 2013. The company reported a 11% YoY and a 34% YoY decline in revenues and profits respectively. Here is our analysis of the results.

Performance summary
  • Net sales decline by 11% YoY during 1QFY14 on the back of a 22% YoY decline in generation volumes.
  • Operating margins contract by 4.1% YoY to 34.6% in 1QFY14. This is due to lower plant availability factor (PAF) at Surat coupled with related maintenance costs. Operating profits decline by 20% YoY.
  • A poor operating performance coupled with a higher tax outgo leads to a 34% YoY decline in profits.

(Rs m) 1QFY13 1QFY14 Change
Net sales 3,515 3,130 -10.9%
Expenditure 2,155 2,048 -5.0%
Operating profit (EBDITA) 1,360 1,082 -20.4%
EBDITA margin (%) 38.7% 34.6%  
Other income 19 74 298.9%
Depreciation 412 394 -4.4%
Interest 260 230 -11.4%
Exceptional items - -  
Profit before tax 707 532 -24.7%
Tax 155 168 7.9%
Effective tax rate 22% 32%  
Profit after tax/(loss) 551 364 -33.9%
Net profit margin (%) 15.7% 11.6%  
No. of shares (m)   151.3  
Diluted earnings per share (Rs)*   9.3  
Price to earnings ratio (x)             8.0  

What has driven performance in 1QFY14?
  • GIPCL reported an 11% YoY decline in revenues on the back of the company's generation volumes declining by 22% YoY. The key reason for the same was a three to four week maintenance of its Surat plants (unit 1 and 2). The plant's generation volumes reduced by 55% YoY during the quarter. Further, its operating profits declined by 20% YoY as its other expenses increased sharply during the quarter. This is seemingly related to maintenance costs.

    Plant availability factors (PAFs) of the two units at Surat (SLPP) stood at about 68% (unit I) and 89% (Unit II) respectively. PAFs stood in the range of 98-99% for both the Vadodara stations.

What to expect?
At the current price of Rs 57, the stock is trading at a multiple of 0.53 times its FY13 book value per share and at about 0.45 times our estimated FY15 BVPS.

The fact that the company works on a fixed ROE model, has its fuel supply secured and has sign signed power purchase agreements make it a safe bet. Concerns related to fuel supply (especially gas) do however remain over the long term. Notwithstanding the same, we maintain our 'Hold' view on the stock from a long term perspective and expect the company's financial performance to improve in the coming future given that the quarter gone by saw some aberrations on the back of maintenance costs.

We would like to reiterate that no stock should form more than 5% of one's portfolio. Please visit our asset allocation page for more details.

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