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Guj. Ind. Power Co.: Tax credit helps bottomline - Views on News from Equitymaster

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Guj. Ind. Power Co.: Tax credit helps bottomline

Aug 19, 2010

Gujarat Industries Power Co. Ltd. recently declared its 1QFY11 results. The company reported a flat sales performance during the quarter. Its net profit however grew by 42% YoY, aided by a one-time tax write-back. Here is our analysis of the results.

Performance summary
  • Sales during 1QFY11 almost flat at 1QFY10 levels.
  • Operating margins rise to 25.4% during the quarter (from 24.5% in 1QFY10). Lower fuel costs lead to this expansion in margins.
  • Largely due to a big tax credit from previous years, 1QFY11 net profits grow by 42% YoY.
  • Excluding the credit, profit growth stands at 12% YoY.


Financial performance snapshot
(Rs m) 1QFY10 1QFY11 Change
Power generation (m units) 1,131 1,088 -3.8%
Sales 2,529 2,526 -0.1%
Expenditure 1,908 1,885 -1.2%
Operating profit (EBDITA) 621 640 3.2%
Operating profit margin (%) 24.5% 25.4%  
Other income 12 4 -63.0%
Interest 55 41 -25.7%
Depreciation 221 215 -2.9%
Profit before tax 357 389 9.2%
Tax 63 (29)  
Profit after tax/(loss) 294 419 42.3%
Net profit margin (%) 11.6% 16.6%  
No. of shares 151.3 151.3  
Diluted earnings per share (Rs)*   7.9  
P/E ratio (x)*   14.5  
* On a trailing 12 month basis

What has driven performance in 1QFY11?
  • Gujarat Industries Power Co. Ltd. (GIPCL) reported a flat sales performance during 1QFY11. The company’s total power generation declined by 4% YoY, led by lower capacity utilization at two of its three plants – Vadodara Station II, and Surat Lignite Power Plant (SLPP). While the former recorded a utilization of 76.8% during 1QFY11 (80.3% in 1QFY10), the latter’s utilization stood at 93.2% (98.9%). As for the third pant (Vadodara Station I), utilization improved marginally to 95.5% (95% in 1QFY10).

  • GIPCL reported an operating margin of 25.4% during 1QFY11. This was higher by 0.9% as compared to the margin in 1QFY10. This expansion in margins was brought about by lower fuel costs. These costs declined to 64.3% of sale in 1QFY11, from 66.8% in 1QFY10.

  • Led by higher operating margins, and mainly due to a one-time tax credit, GIPCL’s net profit grew by a strong 42% YoY during 1QFY11. The interest costs also came down by 26% YoY. Excluding the one-off tax credit of Rs 88 m during the quarter, the net profit growth stands at just around 12% YoY.

What to expect?
At the current price of Rs 114, the stock is trading at a multiple of 1.1 times our estimated FY13 book value per share. The benefits of the 250 MW expansion at SLPP are yet to be seen in GIPCL’s numbers. We maintain our view on the stock from a 2-3 years perspective.

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