Tata Power: Forex losses offset gains from subsidiaries

The company reported a consolidated net profit of Rs 75 cr as against a loss of Rs 84 cr in the year ago quarter

Even though Tata Power returned to profits, it failed to meet Street expectations for the quarter ended September. The company reported a consolidated net profit of Rs 75 crore, as against a loss of Rs 84 crore in the year-ago quarter and loss of Rs 115 crore in the June quarter. Analysts were expecting net profit of about Rs 123 crore.

Apart from higher forex losses, the standalone power generation as well as the Indonesia-based coal businesses were largely responsible for the lower than expected profits. While consolidated revenues were up 14 per cent to Rs 8,765 crore they were below estimates of Rs 9,360 crore. Positively, operating profits came in at Rs 2,031 crore (up 35 per cent year-on-year) and better than estimates of Rs 2,003 crore. The stock closed a per cent higher at Rs 78.70 on the BSE, which was in line with the Sensex's gain.

Going ahead, the near-term outlook for the company is benign with key triggers being a positive outcome on the Mundra project tariff increase, which will help offset the project’s losses at the net level.

Its standalone business (24 per cent of consolidated revenues) sold 3,762 million units of power during the quarter, which was down 11 per cent due to the lower demand and shutdown and outage at certain power units of the company. Thus, standalone revenues fell 14 per cent year-on-year to Rs 2,075 crore. Other subsidiaries, however, reported good performance. Thus, at consolidated level, the company was able to report a good performance led by a 14 per cent rise in revenues.

“In the second quarter, the company's revenue growth is driven by operations of all the units of Mundra and Maithon. All our projects and subsidiaries have performed well. However, we continue to be pressurised by higher forex losses,” said Anil Sardana, managing director of Tata Power.

With all the five units of 800 Mw each operational, Mundra project was the biggest contributor and added Rs 1,014 crore to revenues. Mundra project generated 5,425 million units of power in the September quarter as against 1,540 million units in the year-ago period.

Consolidated revenues also got support from higher volumes in coal business, revenues from shipping segment and Rs 79 crore additional contribution from Maithon Power.

Moreover, there was a remarkable improvement in the profitability as consolidated operating profits increased by 35 per cent year-on-year to Rs 2,031 crore. The increase, again, was led by Mundra project, which made an operating profit of Rs 228 crore as against a loss of Rs 2 crore in year ago quarter when only two of its units were operational. The Maithon project also added to the profitability led by full operation of both units, tie-up of 900 Mw and insurance claim for loss of profit for damage of generator in July 2013.

However, majority of the operational gains did not translate into similar gains at the net level. In the September 2012 quarter, the company reported a consolidated loss of Rs 84 crore. Even if one adjusts for last year’s one-time exceptional item pertaining to impairment cost of Rs 250 crore relating to Mundra project, the net profit for September 2013 quarter at Rs 75 crore is still lower by over 60 per cent. The profit was impacted by forex loss of Rs 354 crore as a result of depreciation in rupee; in the year-ago quarter, the loss stood at Rs 31.6 crore. The company has foreign currency loans of about $2.5 billion in its books. Interest costs also shot up by 29 per cent year-on-year as a result of commissioning of all units of Mundra project and due to hedging costs.

In the September quarter, the coal business (a fourth of consolidated revenues), too, proved a drag. It reported loss before interest and tax of Rs 3.74 crore as against profit of Rs 287 crore and Rs 95 crore in the September 2012 and June 2013 quarters, respectively. Though higher volumes and cost saving helped to some extent, the coal business suffered due to lower realisation as a result of falling international coal prices.