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Tata Power: Margins rise, other income surges
Nov 15, 2010

Tata power has declared its 2QFY11 results. The company has reported 1% YoY growth in consolidated sales while net profit has surged by 83% YoY. Here is our analysis of the results.

Performance summary
  • Standalone sales fall by 5% YoY during 2QFY11, largely due to a decline in volume sales of electricity and weaker realisations. On a consolidated basis, net sales are up a marginal 1% YoY, helped by the coal mining business.
  • Consolidated operating margins rise to 23.6% in 2QFY11, from 20% in 2QFY10 – improvement aided by lower fuel and coal processing costs (as percentage of sales).
  • Led by the improvement in operating margins and higher other income (due to high forex gains), consolidated net profits surge by 83% YoY during the quarter. Sales and profit growth for the first half (1HFY11, consolidated) stands at 4% and 8% YoY respectively.

Financial performance snapshot
  Standalone Consolidated
(Rs m) 2QFY10 2QFY11 Change 2QFY10 2QFY11 Change 1HFY10 1HFY11 Change
Power generation (m units) 4,046 3,695 -8.7% NA NA   NA NA  
Units sold (m units) 3,935 3,926 -0.2% NA NA   NA NA  
Net sales 17,211 16,361 -4.9% 47,535 48,095 1.2% 96,063 99,944 4.0%
Expenditure 13,043 12,850 -1.5% 38,037 36,722 -3.5% 74,504 77,181 3.6%
Operating profit (EBDITA) 4,168 3,510 -15.8% 9,498 11,373 19.7% 21,559 22,762 5.6%
Operating profit margin (%) 24.2% 21.5%   20.0% 23.6%   22.4% 22.8%  
Other income 755 1,935 156.3% 784 3,161 303.4% 1,471 2,267 54.1%
Interest 1,018 1,084 6.5% 1,877 2,081 10.8% 3,933 3,799 -3.4%
Depreciation 1,184 1,327 12.1% 2,244 2,470 10.1% 4,255 4,820 13.3%
Profit before tax 2,721 3,034 11.5% 6,160 9,983 62.1% 14,842 16,410 10.6%
Tax 889 517 -41.9% 2,387 2,648 10.9% 5,233 5,538 5.8%
Minority interest NA NA   275 673 144.7% 579 1,076 85.9%
Share of profit of associates NA NA   189 93 -50.9% 184 136 -26.0%
Profit after tax/(loss)# 1,832 2,517 37.4% 3,687 6,755 83.2% 9,215 9,932 7.8%
Net profit margin (%) 10.6% 15.4%   7.8% 14.0%   9.6% 9.9%  
No. of shares             237.1 237.3  
Diluted earnings per share (Rs)*               85.9  
P/E ratio (x)*               16.1  
* On a trailing 12-months basis

What has driven performance in 2QFY11?
  • Tata Power saw a 5% YoY decline in its standalone sales during the quarter. This was led by a 9% YoY decline in power generation and subsequently a marginal decline in volume sales. On a consolidated basis, though, the company's coal mining business came to its rescue. This business grew its sales by 7% YoY during the quarter even as the power sales were down 6% YoY.

    Segment wise sales (Consolidated)
      2QFY10 2QFY11 Change 1HFY10 1HFY11 Change
    Power            
    Revenue (Rs m) 31,986 29,927 -6.4% 65,416 64,975 -0.7%
    % of total revenue 66.3% 61.6% 67.6% 64.5%
    PBIT margins 13.2% 15.7% 16.6% 15.2%
    Coal (Indonesian mines)            
    Revenue (Rs m) 13,795 14,749 6.9% 26,776 30,140 12.6%
    % of total revenue 28.6% 30.4% 27.7% 29.9%
    PBIT margins 24.7% 24.6% 26.6% 26.1%
    Others*            
    Revenue (Rs m) 2,498 3,891 55.7% 4,616 5,612 21.6%
    % of total revenue 5.2% 8.0% 4.8% 5.6%
    PBIT margins 11.3% 52.1% 10.8% 34.5%
    * 'Others' includes defense electronics, solar equipments,
    projects, coal bed methane and property development

  • Tata Power's consolidated operating margins improved to 23.6% during 2QFY11, from 20% in 2QFY10. This was on account of the fall in fuel costs. As percentage of sales, these costs declined from 25.8% in 2QFY10 to 21.3% in 2QFY11. Sourcing of coal from owned mines in Indonesia resulted in this decline in fuel costs for the company during the quarter. The company also recorded a decline in coal processing charges and cost of power purchased.

  • Consolidated net profits grew by a substantial 83% YoY during 2QFY11, largely as a result of the rise in operating margins. A tripling of other income also aide the profit growth. This rise in other income was due to a higher forex gain recorded during the quarter.

What to expect?
At the current price of Rs 1,385, the stock is trading at a multiple of 1.9 times our estimated FY13 book value. We maintain our view on the stock from a 2-3 years perspective.

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