Tata Power Company, one of India's largest power utility companies, is expected to maintain its growth pace in its second quarter result to be announced on Monday.
While analysts are bullish on the long term prospect of the company, they do not foresee any substantial rise in net sales and net profit near term.
Net profit for the quarter ended September 30, 2008 is being projected between Rs 240 crore and Rs 164 crore on projected net sales of Rs 1760 crore to Rs 1925 crore.
Alex Mathew, head - research, Geojit Financial, said, “the company will register lower profit margin in Q2 due to increase in input cost (both oil and coal) during the quarter. Further, in the corresponding quarter previous fiscal, there was an additional income component of Rs 896 crore by way of foreign exchange gains. This component will not figure in the Q2 result this fiscal.”
There are certain key drivers that are positive in the long run. Tata Power’s total power generation capacity stands at 2300MW. It plans to increase it to 11,000MW by the end of FY 2013. Its inorganic growth plans also raise expectations about its long term prospect.
The company has entered in geo-thermal energy by acquiring 11.4 per cent stake in Australian company Geodynamics, which is a market leader in geothermal energy in Australia. It will play rich dividend for the company, analysts believe.
The company is exploring options after sharp erosion in value of shares pledged by Bumi’s parent company, Bakrie & Brothers, with various lenders. Tata Power has a 30 per cent stake in two unlisted coal subsidiaries of Bumi Resources, a transaction that was effected last year for $1.1 billion.
“Other ongoing expansion and acquisition plans definitely augur well for the company’s future prospects and if all goes well the company is expected to post at least 15-18 per cent CAGR in coming few years,” said Dillip Davada, a Mumbai-based analyst.
A report by SMC Global says, Tata Power holds good return prospect on back of solid management, inorganic growth plans, enhancing capacities from 2,368MW to 10,000 MW by 2012 and de-risk business model along with this their strategic electronic division, which is into defence equipment, has an order backlog of Rs 200 crore.
Commented Prasad Dahapute, analyst - Antique Finance, “owing to credibility of the promoter group, the company promises a stable business. Any marginal decline in profitability cannot dampen its future potential. It is a long term ‘buy’ for investors.”
