Tata Power: Current booking

Tata Power's stake in group's telecom ventures has captured investor interest

Tata Power has reported a 12 per cent y-o-y decline in its operating profit to Rs 196.82 crore in the December quarter. Operating profit margin declined a huge 779 basis points to 15.98 per cent in Q3 FY06.

Nevertheless, the results were better than analysts' forecasts of a 15 per cent y-o-y dip in operating profit. A fall in profits in the power business has led to this decline.

Unit sales of electricity grew 9.68 per cent to 3,352 million units in the last quarter. However, Tata Power had purchased almost 144 million units of electricity from external sources compared with a surplus of 185 million units in Q3 FY05.

As a result, cost of power purchased rose 101 per cent y-o-y to Rs 208.08 crore in Q3 FY06. The cost of fuel also rose by 41.2 per cent to Rs 645.33 crore in the December 2005 quarter.

Meanwhile, realisations are estimated to have grown to Rs 3.5 per unit in Q3 FY06 compared with Rs 2.8 in a year ago.

Analysts highlight that higher unit realisations in the December quarter could only partially offset rising input costs. As a result, segment profit of the power business fell 32.7 per cent y-o-y to Rs 135.36 crore in the quarter.

Tata Power's 120 mw plant at Jojobera, Jharkhand has been recently commissioned, and it should help to bring down expenditure relating to cost of power purchased.

Nevertheless, investor interest remains high owing to Tata Power's stake in Tata Teleservices and VSNL's holding company.

The market value of these instruments translates into about Rs 100 a share, around 20 per cent of the current market price, say analysts. As a result, the stock gets a valuation of almost 21 times estimated FY06 earnings.

MTNL: Tax gains

The Rs 1,233 crore income tax refund and interest on refund is a boon for MTNL's shareholders. On a per share basis, the refund works out to a neat Rs 19.57 a share. After the news, the stock price went up by 5 per cent to Rs 141.

For the December 2005 quarter, MTNL's results were disappointing. Its operating profit went up by 8.2 per cent q-o-q to Rs 242.8 crore. But net profit fell 21.8 per cent, as other income halved.

MTNL's basic services business is ailing, although cellular business is doing better. While subscriber base declined 1 per cent over Q2 FY06 in fixed line, the GSM subscriber based went up by an impressive 19 per cent.

In terms of profitability too, the segment margin in basic services declined by 608 basis points q-o-q to 5.64 per cent whereas the segment margin improved by 143 basis points to 33.05 per cent for cellular services.

Besides lower licence fee, a reduction in operating expenditure helped operating profit growth, which is not healthy as the mobile market is highly competitive, and advertising and marketing expenditure is required to propel subscriber growth.

A lot depends on how MTNL uses the cash in hand to grow the GSM and internet businesses to compensate for the subscriber loss in basic services and reduce staff costs.

Dabur: Food for Growth

Driven by a 46 per cent increase in the turnover of its foods business, Dabur India has reported a sales growth of 26 per cent y-o-y at Rs 537.4 crore for the quarter ended December 2005. The FMCG business too grew at a reasonably good rate of 27.4 per cent y-o-y.

With raw material prices remaining stable, the raw material to sales ratio dropped to 35.9 per cent from 36.6 per cent in Q3 FY05.

Also, the company has opted to shift more of its production in-house "" the ratio of purchased goods to sales has dropped to 6.8 per cent from 9 per cent.

Thus, the operating profit has increased nearly 40 per cent to Rs 82.7 crore. Besides, Dabur has benefited from excise savings at its Uttaranchal units.

All this has helped boost the operating profit margin by 150 basis points to 15.4 per cent. The spend on advertising and promotion too fell to 13.2 per cent of sales compared with 14 per cent in Q3 FY06.

With the Balsara acquisition, Dabur has a strong portfolio of brands and has been able to grow them. The management is aggressively pursuing both organic and inorganic opportunities.

However, operational gains have been more or less factored into the current valuations. For instance, with the Uttaranchal unit now fully operational, fiscal benefits will be more or less captured this year. At Rs 116, the stock trades at 26 times estimated FY07 earnings.

With contributions from Amriteshwar Mathur and Shobhana Subramanian