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Guj. Ind. Power: Higher taxes cap gains
Dec 6, 2012

Gujarat Industries Power Corp (GIPCL) declared the results for the second quarter of financial year 2012-2013 (2QFY13). The company has reported 20.1% YoY growth in net sales and 16% YoY growth in net profits for the quarter. Here is our analysis of the results.

Performance summary
  • Net sales grow by 10% YoY during 1HFY13, on the back of 3% YoY growth in generation volumes.
  • Operating margins rise to 37% during 1HFY13 from 34.4% in 1HFY12 due to higher plant availability factor (PAF) in the gas based power plants.
  • Despite better operating margins, higher other income and low interest outgo, net profits rise by 23% YoY in 1HFY13 due to higher effective tax rates.

Standalone financial performance
(Rs m) 2QFY12 2QFY13 Change 1HFY12 1HFY13 Change
Net sales 2,999 3,602 20.1% 6,406 7,088 10.6%
Expenditure 2,076 2,313 11.4% 4,200 4,467 6.4%
Operating profit (EBDITA) 923 1,289 39.7% 2,206 2,621 18.8%
EBDITA margin (%) 30.8% 35.8%   34.4% 37.0%  
Other income 38 64 68.4% 61 112 83.6%
Depreciation 427 407 -4.7% 848 819 -3.4%
Interest 295 285 -3.4% 616 545 -11.5%
Exceptional items - 601   - 601  
Profit before tax 239 1,262 428.0% 803 1,970 145.3%
Tax (37) 942   94 1,098 1068.1%
Effective tax rate -15% 75%   12% 56%  
Profit after tax/(loss) 276 320 15.9% 709 872 23.0%
Net profit margin (%) 9.2% 8.9%   11.1% 12.3%  
No. of shares (m)         151.3  
Diluted earnings per share (Rs)*         9.0  
Price to earnings ratio (x)         7.7  
(*On a trailing 12-month basis)

What has driven performance in 1HFY13?
  • With just 3% YoY growth in generation volumes, higher tariffs helped Gujarat Industries Power Co. Ltd. (GIPCL) report a 10.6% YoY growth in net sales during the second quarter. Also, the company's operating margins went up due to lower fuel costs on a YoY basis and higher plant availability factor (PAF) at all units except one of the lignite plants. PAFs were healthy for the remaining plants.

    All of the company's plants, barring SLPP station II, had healthy PAF during the quarter. Vadodara stations I and II operated at PAF of 97.7% (95.4% in 2QFY12) and 98.9% (90.7% in 2QFY12), respectively. SLPP I and II stations operated at PAFs of 78.4% (68.0% in 2QFY12) and 61.6%.

  • GIPCL recently expanded its capacity at Surat (Unit 3), while had led to the increase in the company's interest and depreciation charges in FY12. GIPCL had debt of almost 0.9 times equity on its books at the end of FY12.

  • The company's earnings are expected to grow at a faster rate over the next two to three years on the back of full flown operations at Surat (500 MW) which had few technical issues in FY12, now resolved.

  • GIPCL is well placed in terms of fuel security, with the entire fuel requirement of 500 MW SLPP stations I and II met from captive lignite mines. Further, power generated by the company has assured offtake through PPAs signed under the cost-plus model, ensuring RoE of 14% (excl. generation linked incentives) at 75% and 80% PAF for lignite and gas-based plants.

What to expect?
At the current price of Rs 69, the stock is trading at a multiple of 0.6 times our estimated FY15 book value per share. GIPCL is well placed in terms of fuel security, with the entire fuel requirement of 500 MW SLPP stations I and II met from captive lignite mines. Further, power generated by the company has assured offtake through power purchase agreements signed under the cost-plus model. This ensures RoE of 14% (excluding generation linked incentives) at 75% and 80% PAF for lignite and gas-based plants. The high dividend yield on the stock is the additional sweetener. We reiterate our Buy view on the stock.

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