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BSES: Higher costs hit margins - Views on News from Equitymaster
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  • Oct 31, 2000

    BSES: Higher costs hit margins

    BSES Limited, one of India's best managed power companies, has declared a 23% jump in sale of electrical energy (its core business) in 2QFY01. After seeing a lull in the first quarter, the company's EPC (Engineering, Procurement and Construction), contracts and computer service division has shown a remarkable turnaround to record a 115% jump in revenues.

    (Rs m) 2QFY00 2QFY01 Change 1HFY00 1HFY01 Change
    Sale of electrical energy 4,755 5,827 22.6% 9,455 11,269 19.2%
    EPC, Contracts, Computer Service Income 843 1,820 115.9% 2,776 2,256 -18.7%
    Other Income 145 107 -26.5% 409 371 -9.2%
    Expenditure 4,268 6,422 50.5% 9,355 10,851 16.0%
    Operating Profit (EBDIT) 1,330 1,226 -7.8% 2,877 2,675 -7.0%
    Operating Profit Margin (%) 28.0% 21.0%   30.4% 23.7%  
    Interest 226 187 -17.3% 468 362 -22.6%
    Depreciation 472 475 0.7% 944 950 0.6%
    Profit before Tax 777 670 -13.7% 1,873 1,734 -7.4%
    Tax 260 70 -73.1% 480 270 -43.8%
    Profit after Tax/(Loss) 517 600 16.1% 1,393 1,464 5.1%
    Net profit margin (%) 10.9% 10.3%   14.7% 13.0%  
    No. of Shares (eoy) (m) 137.9 137.9   137.9 137.9  
    Earnings per share*       20.2 21.2  
    Current P/e ratio         8.3  

    Despite the growth in topline, its operating margins declined as a result of a huge 51% jump in its operating expenditure. A 72% surge in the cost of electrical energy purchased (Rs 3,101 m) was a major contributor to this jump in expenditure. This was because BSES was forced to buy extra power from Tata Electric at higher costs, in view of the maintenance work that was on in one unit of Dhanau. A 128% jump in cost of materials for its EPC, contracts and computers division also contributed to deflated the operating margins.

    But a 17% decline in its interest outgo, and lesser tax provisioning saw the company post a 16% growth in bottomline in 1QFY01.

    We had projected a 14% growth in BSES's topline and a marginal 1% growth in its bottomline for FY01. Based on its first half results in FY01, the company seems to have surpassed our expectations.

    At the current price of Rs 177, the stock trades at an annualised P/e multiple of 8.3 times its FY01 earnings. The growth in the company's turnover, coupled with a turnaround in its EPC business is encouraging for BSES. The jump in cost of electrical energy seems like a one time expense. The next half of FY01, should be better than 1HFY01, provided the cost of fuel doesn't shoot up for this company.



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