Reliance, Satyam Surprise Analysts
BSES
Billing policy hits bottomline
The fourth quarter was one of the worst quarters in recent times for BSES, with the third quarter a close second. While profits fell 79 per cent in the third quarter of FY03, they fell a staggering 92 per cent in the recent quarter, ended March 2003. Much of the fall in profits has to do mainly with two issues.
First, the company has discontinued its policy of drawing provisional bills, as a result of which the company withdrew Rs 135 crore of revenues, Rs 71 crore in the third quarter and Rs 64 crore in the fourth. The reversal of bills represents mainly the excess revenues estimated by BSES and charged to consumers.
The other reason for the decline in profits was the increase in cost of power purchased from Tata Power. As a power distribution licensee in North Mumbai, the company takes a part of its power requirements from Tata Power. With the cost of liquid fuels increasing over the last year, Tata Power has also hiked its power tariffs, typically known as fuel adjustment charges.
While BSES is allowed to pass on increase in fuel costs to its consumers, it cannot pass on the increase in cost of power purchased from Tata Power, thereby impacting profitability.
The move to discontinue provisional billing is a good one since it will result in marginally better transparency in its revenue stream since the amounts withdrawn also including prior periods are minuscule one compared to its annual turnover.
On the other hand, the move is likely to result in a slight increase monitoring and administration costs.
According to analysts, with the passage of the Electricity Bill, there is always the possibility of BSES now going ahead with its Saphale power project, which has been stalled for some time now due to the existing power purchase agreement with Tata Power. This will enable the company to escape increases in power purchase costs and also bring down its cost of generation.
However, even if the company decides to go ahead, there is still the gestation period between construction and commercial operation that needs to be considered.
Cipla
Exports take a knock
A 30 per cent fall in exports has been the main reason for the dismal showing by Cipla in the fourth quarter ended March 2003. The fall was mainly due to experimental exports of Omeprazole in the corresponding quarter to Andrx. While Andrx had been granted a 180-day exclusivity, patent infringement concerns by Andrx had precluded Omeprazole exports by Cipla as a significant earnings driver.
Further, a shrinking domestic market for formulations also had an impact on its domestic sales. Formulations sales in the quarter fell 11 per cent and according to analysts, there would also likely have been an impact of implementation of VAT leading to lower offtake of products by the vendors. Thus, on the one hand, while exports have been cut short, falling domestic sales worsened the situation.
As a result, Cipla's topline fell 1.56 per cent in the March quarter compared to the same period last year. The loss of high-margin exports and increase in raw material costs due to a change in product profile led to a 10 percentage point fall in operating margins to 12.12 per cent. Also, a 440 per cent increase in other income and a 82 per cent decline in tax provisioning were not enough to prevent a 24 per cent slide in net profits.
The lower sales in the quarter create a paradox of sorts. This is because according to ORG-MARG, Cipla's volume sales have grown 6 per cent and 9 per cent in the months of February and March 2003 year-on-year. This volume growth does appear to have been reflected in its topline, unless there has been a heavy fall in realisations to negate the volume growth.
The outlook for the company is not very encouraging. First, the delay in implementation of VAT is likely to extend the negative impact on sales. Secondly, the strike by truckers this month will also create problems in offtake.
Thirdly, the company currently has only two visible revenue drivers in greater formulations exports and export of inhalers to the EU, for which the company has already lost an anticipated first mover advantage.
ICICI Bank
Retail business aids growth
ICICI Bank