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Tata Power: Forex losses impact profits
Sep 21, 2013

Tata Power declared its results for the quarter ended June 2013. The company's standalone revenues and profits increased by 14% YoY during the quarter. Here is our analysis of the results.

Performance summary
  • Standalone revenues grow by 14% YoY during 1QFY14 on the back of higher volumes sold.
  • Operating profits rise by 97% YoY on the back of 12% YoY expansion in margins. However, profits before tax rise at a slower pace on account of lower other income coupled with higher finance costs as well as forex losses (gains during 1QFY13).
  • On consolidated basis, the company's revenues increased 29% YoY during 1QFY14. However, the company reported a loss of Rs 1.15 bn during the quarter. In 1QFY13, the company reported a profit of about Rs 1.5 bn.

Standalone financial performance
(Rs m) 1QFY13 1QFY14 Change
Generation 3,366 3,897 15.8%
Sales 3,542 4,136 16.8%
Net revenue 22,841 26,075 14.2%
Expenditure 19,069 18,655 -2.2%
Operating profit (EBDITA) 3,772 7,420 96.7%
EBDITA margin (%) 16.5% 28.5%  
Other income 2,924 2,456 -16.0%
Depreciation 1,548 1,360 -12.1%
Interest 1,398 2,363 69.0%
Gain/ (Loss) on exchange 532  (657)  
Profit before tax 4,281 5,496 28.4%
Tax 1,158 1,926 66.3%
Effective tax rate 27% 35%  
Profit after tax/(loss) 3,123 3,570 14.3%
Net profit margin (%) 13.7% 13.7%  
No. of shares (m)   2,373.1  
Diluted earnings per share (Rs)*    5.1  
Price to earnings ratio (x)   14.8  
*On a trailing 12-month basis

What has driven performance in 1QFY14?
  • Tata Power's generation and sales volumes increased by 16% YoY and 17% YoY during the quarter. Growth was largely led by the company's Mumbai power business as well as a favourable ATE order. The profit growth would have been higher had it not been for the forex losses (gains during 1QFY13). Lower other income was largely due to lower dividends received.

  • As for the consolidated performance, the company's revenues grew by 29% YoY on the back of commissioning of all units of the Mundra and Maithon plants as well as more business from the trading business. The company however reported a loss on account of forex losses, higher depreciation and interest charges, with the latter two jumping up due tofull commission of plants. As reported by the company, the forex losses were mainly due to the realigning of liabilities due to the weakening rupee.

  • In terms of segments, EBIT margins of the company's consolidated power business came in at 18.9% during the quarter as compared to 12% last year. Revenues from this business increased by 43% YoY and contributed to about 76% of revenues (68% last year). As for the coal business, revenues declined by 4% YoY and EBIT margins came in at 4.4% as compared to 11.4% last year. It may be noted that the above mentioned numbers are not adjusted for intersegment items. Margins of the company's coal business were under pressure n the back of lower realization due to declining international coal prices.

What to expect?
At the current price of Rs 82, the stock is trading at a multiple of about 1.6 times its FY13 book value per share.

The situation remains similar to the previous quarter. The finalisation of the compensatory tariff for the company's Mundra UMPP project is awaited. The company had mentioned (in early August) that the decision is expected within two months. We recommend investors to hold on to their current positions and not purchase any more shares of the company.

We would like to remind our subscribers that for the purpose of risk minimisation, one should avoid having more than 5% exposure on any one stock from the overall equity portfolio. Please do visit our asset allocation section for further details.

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