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BSES: Core operation blues

Oct 31, 2001

BSES, one of India's leading private utilities, has declared a marginal 1.2% growth in sale of electricity in 2QFY02. Its income from engineering contracts and computer division have taken a hit this quarter (down 29%). This has resulted in an overall 6% decline in the company's operating income. The sale of electrical energy for 1HFY02 has gone up by 4% to 2928 million units.

(Rs m) 2QFY01 2QFY02 Change 1HFY01 1HFY02 Change
Sale of electrical energy 5,827 5,897 1.2% 11,269 11,689 3.7%
Income from EPC, contracts & computer division 1,820 1,301 -28.5% 2,256 2,048 -9.2%
Total operating income 7,647 7,198 -5.9% 13,526 13,738 1.6%
Other Income 107 161 50.9% 371 337 -9.3%
Expenditure 6,422 6,038 -6.0% 10,851 11,006 1.4%
Operating Profit (EBDIT) 1,226 1,160 -5.3% 2,675 2,732 2.1%
Operating Profit Margin (%) 16.0% 16.1%   19.8% 19.9%  
Interest 187 136 -26.9% 362 300 -17.3%
Depreciation 475 527 10.9% 950 1,035 8.9%
Profit before Tax 670 658 -1.9% 1,734 1,734 0.0%
Tax 70 34 -51.9% 270 114 -57.9%
Profit after Tax/(Loss) 600 624 3.9% 1,464 1,620 10.7%
Net profit margin (%) 10.3% 10.6%   13.0% 13.9%  
No. of Shares (eoy) (m) 137.8 137.8   137.8 137.8  
Diluted Earnings per share* 17.4 18.1   21.2 23.5  
Current P/e ratio   10.4     8.0  

Despite a similar decline in the company's operating expenses and a 27% fall in interest outgo, BSES has recorded 2% decline in profits before tax. Had it not been for the taxation benefits the company receives (that saw taxes decline 52%), the company's net profit too would have recorded a negative growth. BSES, as a result of the tax benefits, has declared a 4% growth in bottomline.

The performance in 2QFY02 looks jaded in comparision to 1QFY02. In 1QFY02, BSES sales from electrical energy grew by over 6% and its income from EPC and contracts recorded a 71% growth YoY. This helped the company record a 15% growth in bottomline during the June quarter.

(Rs m) 2QFY01 2QFY02 Change 1HFY01 1HFY02 Change
Cost of energy purchased 3,101 3,072 -0.9% 5,551 5,571 0.4%
Cost of fuel 871 940 7.8% 1,917 2,072 8.1%
Costs related to EPC and others 1,658 1,149 -30.7% 1,993 1,703 -14.6%
Surcharge on generation 0 246   0 246  
Staff cost 321 260 -18.9% 561 501 -10.8%
Other expenses 470 372 -20.9% 829 914 10.2%
Total expenditure 6,422 6,038 -6.0% 10,851 11,006 1.4%

The degrowth in EPC income during the quarter was primarily responsible for this performance. Another concern in the lacklustre growth in sale of electrical energy. BSES seems to have reached a plateau, as far as income from sale of electricity is concerned. Its Dhanau plant is working at optimal capacity, but beyond that there seems no scope for growth in Maharashtra atleast. The company's Saphale project is on a backburner. Its Orissa venture is in losses, atleast for the time being. It would take atleast 2 years for this business to break-even.

Reliance becoming the largest stakeholder in the company (nearly 30%) has raised hopes that it would route all its power initiatives through BSES. But the Reliance management has so far said nothing to that effect. So investors really don't know where BSES stands in the Reliance game plan. Added to this, the standby charge issue is still unresolved.

At Rs 188 the stock trades at a P/E of 8x annualised 1HFY02 earnings.

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