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Tata Power: Operationally strong but… - Views on News from Equitymaster
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  • Oct 22, 2002

    Tata Power: Operationally strong but…

    Tata Power, India's largest private sector utility, has reported a 9% growth in topline during September quarter. However, a sharp dip in other income (down 43% YoY) and a significant extraordinary income in September quarter last year has meant a huge 45% dip in 2QFY03 bottomline.

    (Rs m) 2QFY02 2QFY03 Change 1HFY02 1HFY03 Change
    Sales 11,045 12,021 8.8% 20,373 22,425 10.1%
    Other Income 985 565 -42.7% 1,291 862 -33.2%
    Expenditure 8,076 8,621 6.8% 15,313 16,544 8.0%
    Operating Profit (EBDIT) 2,969 3,400 14.5% 5,059 5,881 16.2%
    Operating Profit Margin (%) 26.9% 28.3%   24.8% 26.2%  
    Interest 890 854 -4.1% 1,493 1,572 5.3%
    Depreciation 701 804 14.8% 1,401 1,628 16.2%
    Profit before Tax 2,363 2,307 -2.4% 3,457 3,544 2.5%
    Extraordinary income 663 0 - 884 0 -
    Tax 577 957 65.9% 1,027 1,357 32.2%
    Profit after Tax/(Loss) 2,448 1,350 -44.9% 3,314 2,187 -34.0%
    Net profit margin (%) 22.2% 11.2%   16.3% 9.8%  
    Diluted no. of Shares (eoy) (m) 197.9 197.9   197.9 197.9  
    Diluted Earnings per share* 49.5 27.3   33.5 22.1  
    Current P/e ratio   3.6     4.4  

    However on an operational level, Tata Power's performance has been pretty strong. The company has managed to keep its costs under control, thereby expanding operating margins to over 28%. The commisioning of the 120 MW capacity at Jojobera (second phase ) in December 2001 is largely responsible for this surge in topline. Another 37.5 MW plant at Wadi must have been commisioned during the September quarter. Considering the fixed return on capital on which the power business in India operates, this should add to its bottomline progressively.

    Power growth…
    (MUs) 2QFY02 2QFY03 Change 1HFY02 1HFY03 Change
    Generation 3271 3480 6.4% 6140 6816 11.0%
    Sale of electricity 3062 3315 8.3% 5775 6472 12.1%

    The extraordinary income shown in 2QFY02 and 1HFY02 reflects the profit on sale of investments like sale of US 64 units as well as sale of its stake in Tata BP Lubricants. Tata Power was also done in by a surge in taxes (up 66% YoY). However, as regards to higher deferred taxes the company has clarified that the half yearly results are not representative of the results for the whole year and the company is likely to adjust taxes at the end of the year.

    Cost break-up
    (Rs m) 2QFY02 2QFY03 Change 1HFY02 1HFY03 Change
    Cost of power purchased 987 1,080 9.4% 1,987 2,077 4.5%
    Cost of fuel 5,300 5,569 5.1% 9,910 10,824 9.2%
    Staff cost 337 207 -38.5% 681 558 -18.0%
    Other expenses 1,452 1,766 21.6% 2,735 3,085 12.8%
    Total 8,076 8,621 6.8% 15,313 16,544 8.0%

    Tata Power has recently invested Rs 1,803 m in North North West Delhi Distribution Company Ltd. for a 49% stake. With effect from July 01, 2002, the company has management control of the aforesaid distribution company. The broadband business of the company has not yet commenced commercial operations and accordingly the income and expenditure during the trial runs have been capitalized and do not form part of the reported numbers in 1HFY03.

    At the current market price of Rs 98 the stock is trading at 4.4x annualised 1HFY03 earnings. The stock has been depressed owing to concerns regarding the company's investments in distribution circle of Delhi, where returns are expected to come in the long term. Even rival BSES's experience in Orrisa has not been good. Also, there are concerns over the company's increasing exposure to the Tata Group's telecom ventures (Tata Teleservices and VSNL).



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