• OCTOBER 31, 2001

BSES: Core operation blues

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)2QFY012QFY02Change1HFY011HFY02Change
Sale of electrical energy5,8275,8971.2%11,26911,6893.7%
Income from EPC, contracts & computer division1,8201,301-28.5%2,2562,048-9.2%
Total operating income7,6477,198-5.9%13,52613,7381.6%
Other Income10716150.9%371337-9.3%
Operating Profit (EBDIT)1,2261,160-5.3%2,6752,7322.1%
Operating Profit Margin (%)16.0%16.1% 19.8%19.9% 
Interest 187136-26.9%362300-17.3%
Profit before Tax670658-1.9%1,7341,7340.0%
Profit after Tax/(Loss)6006243.9%1,4641,62010.7%
Net profit margin (%)10.3%10.6% 13.0%13.9% 
No. of Shares (eoy) (m)137.8137.8 137.8137.8 
Diluted Earnings per share*17.418.1 21.223.5 
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)2QFY012QFY02Change1HFY011HFY02Change
Cost of energy purchased3,1013,072-0.9%5,5515,5710.4%
Cost of fuel8719407.8%1,9172,0728.1%
Costs related to EPC and others1,6581,149-30.7%1,9931,703-14.6%
Surcharge on generation0246 0246 
Staff cost321260-18.9%561501-10.8%
Other expenses470372-20.9%82991410.2%
Total expenditure6,4226,038-6.0%10,85111,0061.4%

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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