Tata Power: Tripping over

Rise in fuel costs hits Tata Power margins

Tata Power has been hit by rising input costs in the June quarter. The company has grown its operating profit by 7.1 per cent y-o-y to Rs 258.1 crore in Q1 FY07, as compared to a 25.3 per cent growth in net sales to Rs 1376.61 crore.

In addition, the company has seen its operating profit margin decline by 319 basis points y-o-y to 18.74 per cent in Q1 FY07.

This decline in margins was largely due to the company grappling with a rise in cost of power purchased, coupled with higher other expenditure in the last quarter. Earlier, NTPC had seen its operating profit margin improve by 244 basis points y-o-y to 27.9 per cent in the last quarter.

Tata Power saw its electricity sales expand by 5.25 per cent y-o-y to 3.8 billion units in the June quarter. Realisations improved by 20.7 per cent y-o-y to Rs 3.5 per unit in Q1, but the 34.5 per cent rise in fuel costs hit margins.

Earlier, NTPC's realisations had reached Rs 1.58 per unit in the June 2006 quarter, as compared to Rs 1.46 per unit a year earlier.

The company has already filed the annual revenue requirement (ARR) and tariff petition for FY06 and FY07 for its Mumbai distribution area with the state regulator MERC.

The regulator is expected to pass an order shortly and it is expected to help the company deal with the under-recovery of fuel adjustment charge for earlier years.

However, with the stock trading at about 16.9 times estimated FY07 earnings, there does not seem much room for appreciation.

Colgate: Something to chew on

An impressive volume growth of 11 per cent and improved realisations resulted in Colgate's revenues increasing by nearly 20 per cent in the June quarter. The stabilisation of its Baddi facility also helped in lower outsourcing, which fell as a percentage of sales by 433 basis points.

Adjusted raw material costs too fell 450 basis points, and as a result, the operating profit went up 30.5 per cent. Operating profit margin improved by 105 basis points y-o-y to 12.95 per cent, but sequentially it was down 217 basis points.

There was cost pressure on account of higher staff costs (up 21.6 per cent) and other expenditure (up 43.42 per cent). Royalty payments and higher freight costs were responsible for higher other expenditure.

The increase in advertising expense of nearly 25 per cent is an investment in the brand. Realisations improved because of a price hike and excise benefits at Baddi.

The company said its new toothpaste launches as well as Colgate Dental Cream did well in the quarter. Toothbrush volumes expanded a stunning 53 per cent.

Going forward, the current volume growth will be difficult but the recent 4 per cent price hike will help improve margins in the next few quarters. But with valuations of an estimated FY07 P/E of 24 times and FY08 P/E of 21, the stock does appear expensive.

TV 18: Prime time

TV 18's revenues for the June quarter have surged 55 per cent y-o-y to Rs 41.6 crore as the news operations continue to do well and Internet revenues begin to kick in.

All the four news channels, clocked strong revenues ""a growth of 100 per cent y-o-y""while revenues from Internet operations were around Rs 5 crore, comprising 12 per cent of revenues.

A combination of better margins from the Internet ventures and a check on operating expenditure has boosted operating profit margin by about 90 basis points to 51.4 per cent and an increase in the operating profit of a smart 57 per cent to Rs 21.4 crore.

TV 18 is yet to renegotiate its contract with Zee Turner, but the company should be able to renew it at around Rs 30 crore, up from the current Rs 22 crore.

The main channels--CNBC TV 18 ,CNN IBN and Awaaz continue to do well and the gameplan to have tied up with leading international properties has worked well.

The recent relaunch of Channel 7 starting to pay off. TV 18 is scaling up the Internet business both via the organic and inorganic routes and has forayed into the shopping space. It plans to raise around Rs 300 crore to fund some of its newer ventures in this space.

At some time, TV 18 could perhaps spin off the Internet businesses into a separate company, freeing up the value. At Rs 618, the stock trades at 20 times estimated FY07 earnings and is attractively valued given that once DTH and CAS become popular, subscription revenues would increase.

With contributions from Amriteshwar Mathur and Shobhana Subramanian