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BSES: Aiming for the long haul

Oct 9, 2001

BSES, the aggressive Mumbai distributor and generator, has been out of the limelight for quite some time now. It has been facing a lull on the bourses too. We take a look at what’s cooking and what are its prospects going forward. BSES Limited holds the licence to distribute power to the northern suburbs of Mumbai upto 2011. It has more than 2 m customers with no agricultural load. Until FY96, BSES functioned purely as a power distribution company. However, this changed once the company’s 500 MW thermal generation plant at Dahanu was commissioned. It now generates 55% of its power requirements in-house. In FY01, Reliance Industries became the single largest stakeholder in the company (30% stake).

BSES also has a significant presence in the EPC business. This division contributed Rs 5.3 bn in FY01 (up from Rs 4 bn in FY00). Its contracts and EPC order book stood at Rs 14 bn in July 2001. The EPC division has executed projects worth Rs 35 bn since its inception in FY96. BSES was also successful in bagging 3 Orissa distribution circles out of 4. It has so far invested Rs 1.2 bn for the 51% equity in the project. The circle has a consumer base of 0.8 m with consumption of around 685 MW. The distribution zone has an agricultural load of less than 6%.

In FY01, higher oil prices marred BSES's bottomline as its cost of electrical energy escalated by 43%. This resulted in a small 2% drop (YoY) in the company’s FY01 profits. BSES's bottomline would have shrunk even more had it not been for the taxation benefits it received, which saw taxation provisioning decline by 68%. The company's EPC business meanwhile, continues to deliver growth for the company. In 1QFY02 this business grew by 71%. In FY01, it had grown by over 35% YoY. However, the costs associated with this business have also grown in tandem with the sales growth.

Corporate Plan (upto 2012)
Core Areas Target
Generation 6000 MW
Transmission 3 networks
Distribution 6 areas (incl. Orissa)
Investment strategy  
Core business 85%-90%
Coal washery & telecom 10%-15%

The company's Saphale project in Maharashtra has made no headway and therefore hinders BSES's future growth from sale of electricity, atleast in Maharashtra. Its distribution business in Orissa is still in the red and would require a couple of years to give returns. Though there is anticipation that the Reliance group may route all its power ventures through BSES, the group has as yet not commented on the issue.

Added to this, in the dispute of standby charges by the Maharashtra Electricity Regulatory Commission, BSES has deposited another Rs 143 m (in addition to Rs 540 m deposited in FY01). The concern is that the company has not acknowledged this liability (over Rs 2 bn) and has made no provision towards it. The liability, if it arises, would result in a one time hit to the company.

Considering BSES’s technical prowess it would no doubt play a significant role in India’s power development scenario over the long run. Its corporate plan targets generating capacity of 9000 MW (piggy backing on Reliance), 3 networks in power transmission and 6 new areas in power distribution (including Orissa) by the year 2012.

However, with power still dependent on the government’s policy one cannot expect much over the short term. Also, what role BSES would play in the Reliance scheme of things is not yet clear. At Rs 174 the stock trades at a P/E of 7.7x FY02 projected earnings.

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