Tata Power: Shocked

Operating profits (excluding other income) fall a staggering 96.8 per cent to Rs 5.05 crore in Q4.

Tata Power in the March 2007 quarter has passed on the reversal of tax provisioning of earlier years in the form of rebates to consumers, which adversely affected its realisations on a y-o-y basis in the last quarter. The company has provided for Rs 223.9 crore in Q4 FY07 as rebate to consumers as compared with Rs 36.89 crore a year earlier.

As a result, Tata Power's operating profit (excluding other income) fell a staggering 96.8 per cent y-o-y to Rs 5.05 crore in Q4 FY07, as compared to an 18.6 per cent decline in net revenues to Rs 947.4 crore. Its operating profit margin also declined 1,300 basis points to 0.5 per cent in the last quarter.

The quarterly results were declared after the close of trading on Wednesday and on Thursday, the stock fell 1 per cent per cent to Rs 586.
The company sold 3.4 billion units of power in Q4 FY07, a growth of 3.3 per cent y-o-y, but its realisations (net of the rebate) were estimated at Rs 2.7 per unit, a decline of 19.2 per cent y-o-y.

A small cushion for margins was provided by a tight check on operating costs in the last quarter "" its total expenditure declined 6.4 per cent y-o-y to Rs 942.35 crore. In FY07, its operating profit margin also fell 310 basis points y-o-y to 15.3 per cent.

Tata Power has signed several agreements relating to expansion in its generating capacity, coupled with its recent acquisition of coal mines in Indonesia. The stock trades at 18 times estimated FY08 earnings, given its holdings in group companies in telecom and TCS.

Crompton: Powering ahead

Crompton Greaves, one of India's largest suppliers of transmission and distribution equipment, has come up with encouraging numbers for the March 2007 quarter with sales up 25 per cent y-o-y and the operating profit margin surprisingly higher by 220 basis points y-o-y at 8.6 per cent.

With the power systems segment, the largest contributor to revenues at nearly 50 per cent, turning in a strong top line growth of 47 per cent for full year FY07, Crompton's top line grew 34 per cent to Rs 3,660 crore. Despite raw materials at 67.3 per cent of sales, up 270 basis points, the operating margin improved 150 basis points to 7.4 per cent.

However, net profit were up only 18 per cent because the company provided for a higher tax outgo""37 per cent versus 16 per cent in FY06.

The management believes top line growth in power systems should be around 40 per cent this year, while in industrial systems and consumer products division it should be 22 per cent and 15 per cent respectively.

As for operating margins, the management feels they should sustain for both the power systems as also the industrial systems divisions, especially now that it has started hedging purchases of inputs and has better control over raw material costs.

The standalone order book is strong at Rs 2,300 crore, and at Rs 4,400 crore for the consolidated entity which includes Pauwels and Ganz, companies which Crompton has acquired overseas in the past.

These orders will be executed over the next 10-14 months and the management expects an increase of 20 per cent in the order book this year. At Rs 246, the stock trades at 35 times estimated FY08 earnings and appears to be a trifle expensive.

With contributions from Amriteshwar Mathur and Shobhana Subramanian