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Guj. Ind. Power: Dull performance continues - Views on News from Equitymaster

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Guj. Ind. Power: Dull performance continues
Dec 18, 2013

Gujarat Industries Power Corp (GIPCL) declared the results for the quarter ended September 2013. The company reported a 10% YoY and a 2% YoY decline in revenues and profits respectively. Here is our analysis of the results.

Performance summary
  • Net sales down by 10% YoY on the back of a 22% YoY decline in generation volumes.
  • Operating margins contract by 6.1% YoY to 30% in 2QFY14. This is due to lower plant availability factor (PAF) and Plant load factors (PLFs) at the company's Surat and Vadodara (station II only) plants. Operating profits decline by 25% YoY.
  • Profits declined by 2% YoY only during the quarter on the back of a higher tax outgo during same quarter last year.
  • During 1HFY14, revenues and profits down by 11% YoY and 22% YoY respectively.

Standalone financial performance
(Rs m) 2QFY13 2QFY14 Change 1HFY13 1HFY14 Change
Net sales 3,617 3,246 -10.3% 7,132 6,376 -10.6%
Expenditure 2,312 2,273 -1.7% 4,467 4,321 -3.3%
Operating profit (EBDITA) 1,305 973 -25.4% 2,665 2,055 -22.9%
EBDITA margin (%) 36.1% 30.0%   37.4% 32.2%  
Other income 49 58 17.2% 68 132 94.0%
Depreciation 408 398 -2.4% 819 791 -3.4%
Interest 285 223 -21.9% 545 453 -16.9%
Exceptional items 602 -   602 -  
Profit before tax 1,263 411 -67.5% 1,970 943 -52.1%
Tax 943 98 -89.6% 1,098 266 -75.8%
Effective tax rate 75% 24%   56% 28%  
Profit after tax/(loss) 320 313 -2.4% 871 677 -22.3%
Net profit margin (%) 8.9% 9.6%   12.2% 10.6%  
No. of shares (m)         151.3  
Diluted earnings per share (Rs)*         9.2  
Price to earnings ratio (x)         6.3  
Data Source: Company, Equitymaster Research

What has driven performance in 2QFY14?
  • GIPCL reported a 10% YoY decline in revenues as generation volumes declined by 21% YoY. As per the company, annual overhauling of both Vadodara units was carried out. Further, other issues such as partial loading on account of heavy rains affected the lignite feeding system which impacted the volumes. Not to mention the overall demand being subdued. At its Surat plants (unit 1 and 2) PLFs stood at 56% during the quarter (78% in 2QFY14), while for Unit 3 & 4, the same stood at 47% (64% in 2QFY13).

  • Plant availability factors (PAFs) of the two units at Surat (SLPP) stood at about 84% (unit I) and 67% (Unit II) respectively. PAFs stood in the range of 95-100% for both the Vadodara stations.

  • At the profit before tax level, GIPCL's numbers came in lower by 37% YoY (adjusted for extraordinary items which were on account of contractual claims pertaining to liquidated damages and energy billings being settled/realized). The marginal decline in depreciation charges coupled with a poor operation performance led to the same. Had it not been for the higher tax outgo during 2QFY13, the profit decline would have been sharper.
What to expect?
At the current price of Rs 58, the stock is trading at a multiple of 0.53 times its FY13 book value per share and at about 0.45 times our estimated FY15 BVPS.

GIPCL has lowered its debt position in the past six months with long term borrowings coming down to Rs 5.9 bn as compared to Rs 6.4 bn at the end of FY13. Further, its short term borrowings stood at Rs 617.5 m as compared to Rs 1.08 bn at the end of FY13. Having said that, GIPCL's debtor position has worsened with the debtors moving higher to Rs 2.3 bn from Rs 1.7 bn as of March 31 2013.

While the company has been going through a difficult phase in terms of fuel availability, GIPCL does remain one of the few companies that has signed power purchase agreements for its entire capacity (considering the relatively smaller capacity), thereby making it a safe bet. Given the cheap valuations as well as the attractive dividend yield of about 3.8% (taking the average dividend per share paid out over past nine years), we maintain a 'Hold' view on the stock from a long term perspective.

We would like to reiterate to our subscribers that for the purpose of diversifying risk no stock should form more than 5% of one's portfolio. Please visit our asset allocation page for more details.

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