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Guj. Ind. Power: Better utilization aids profits

Aug 28, 2012

Gujarat Industries Power Corp (GIPCL) declared the results for the first quarter of financial year 2012-2013 (1QFY13). The company has reported a marginal 2.6% YoY growth in net sales and 28% YoY growth in net profits for the quarter. Here is our analysis of the results.

Performance summary
  • Net sales grow by 2.6% YoY during 1QFY13, on the back of 9% YoY growth in generation volumes.
  • Operating margins rise to 38.9% during 1QFY13 from 37.9% in 1QFY12 due to higher plant availability factor (PAF) in the gas based power plants.
  • Backed by better operating margins, higher other income and lower interest outgo, net profits grow by 28% YoY in 1QFY13.

Standalone financial performance
(Rs m) 1QFY12 1QFY13 Change
Net sales 3,427 3,515 2.6%
Expenditure 2,127 2,146 0.9%
Operating profit (EBDITA) 1,300 1,369 5.3%
EBDITA margin (%) 37.9% 38.9%  
Other income 2 19 850.0%
Depreciation 418 421 0.7%
Interest 321 260 -19.0%
Profit before tax 563 707 25.6%
Tax 132 156 18.2%
Effective tax rate 23% 22%  
Profit after tax/(loss) 431 551 27.8%
Net profit margin (%) 12.6% 15.7%  
No. of shares (m)   151.3  
Diluted earnings per share (Rs)*   8.5  
Price to earnings ratio (x)   8.1  
(*On a trailing 12-month basis)

What has driven performance in 1QFY13?
  • Despite less than 10% growth in generation volumes, higher tariffs helped Gujarat Industries Power Co. Ltd. (GIPCL) report a 2.6% YoY growth in net sales during the first quarter. Also, the company's operating margins went up due to lower fuel costs on a YoY basis and higher plant availability factor (PAF) at all units except one of the lignite plants. PAFs were healthy for the remaining plants. Vadodara stations I and II had healthy PAF in excess of 95%. SLPP I station also operated at high PAFs of 95.5%.Overall PLF for the quarter, however, stood at low 65% due to low offtake from gas-based stations.

  • GIPCL's total power generation was 9% YoY higher at 1,313 MU in 1QFY13 against 1,207 MU in 1QFY12. Power generation at Vadodara station I and II stood at 204MU and 123MU, respectively. SLPP stations I and II generated 495 MU and 489 MU of power, respectively, during the quarter. The SLPP 5 MW solar power plant commissioned in January 2012 generated 2 MU in the quarter.

  • GIPCL recently expanded its capacity at Surat (Unit 3), while had led to the increase in the company's interest and depreciation charges in FY12. GIPCL had debt of almost 0.9 times equity on its books at the end of FY12.

  • The company's earnings are expected to grow at a faster rate over the next two to three years on the back of full flown operations at Surat (500MW) which had few technical issues in FY12, now resolved.

  • GIPCL is well placed in terms of fuel security, with the entire fuel requirement of 500MW SLPP stations I and II met from captive lignite mines. Further, power generated by the company has assured offtake through PPAs signed under the cost-plus model, ensuring RoE of 14% (excl. generation linked incentives) at 75% and 80% PAF for lignite and gas-based plants.

What to expect?
At the current price of Rs 69, the stock is trading at a multiple of 0.6 times our estimated FY15 book value per share. GIPCL is well placed in terms of fuel security, with the entire fuel requirement of 500 MW SLPP stations I and II met from captive lignite mines. Further, power generated by the company has assured offtake through power purchase agreements signed under the cost-plus model. This ensures RoE of 14% (excluding generation linked incentives) at 75% and 80% PAF for lignite and gas-based plants. The high dividend yield on the stock is the additional sweetener. We reiterate our positive view on the stock.

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