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India's Leading Infrastructur Companies 2013

 
 

Dun & Bradstreet (India) attempts to highlight key trends in the Indian Infrastructure Sector and provides insights into their performance in two sections through this study. In each section, the study presents the insights derived from a detailed analysis of data gathered through secondary sources. The first section is an analysis of the financial performance of construction companies. The second section presents a comparable matrix between the private and the governmentowned power companies.

Section A: Construction Insights

The Indian construction sector plays an important role in the country’s development as it continues to contribute to India’s GDP at around 8% (at 2004-05 prices) through FY11 to FY13. GDP from construction sector at factor cost (at 2004-05 prices) has grown to Rs 7,673.9 bn in 2013 from Rs 5,954.5 bn in 2011. The labour intensive construction sector is one of the largest employment providers after agriculture, in the country, providing employment to nearly 35 mn people.

The financial insights section on construction sector provides a brief overview of the current and past performance of the construction companies. The sample selected for this analysis comprises of construction companies featured in the publication whose comparable financial information for the last three years was available (FY11-FY13). A list of 85 construction companies have been considered for analysis. 

Construction sector comprises of real estate companies and infrastructure development companies based on the economic activities performed by these companies. Of the 85 construction companies, 25 real estate companies and 60 infrastructure development companies have been identified for the purpose of analysis. 

Infrastructure construction companies are defined by companies that contribute to the execution of heavy projects such as roads, bridges, tunnels, railways, ports, airports, highways, urban infrastructure etc. Real estate companies constitute companies that are involved in the construction of residential buildings, townships, commercial complexes, SEZ/IT parks etc. 

Moderation in economic growth had a visible impact on the top line of construction companies

FY13 was marked by the lowest domestic economic growth in the past decade, tightened liquidity conditions, firm inflation, and high interest rate scenario. India’s GDP growth at factor cost at constant prices decelerated to 5% in FY13 from 6.2% in FY12 as against 9.3% in FY11. This was as a result of the global economic slowdown. The growth (2004-05 prices) of industrial production slowed down to 1% during FY13 as against 2.9% in FY12. The services sector growth slowed down to 6.8% in FY13 as against 7.9% in FY12. 

The Indian economy was also impacted by the widening current account deficit (CAD), which reached an all-time high of 6.7% in Q3FY13. Growing trade deficit due to restrained exports growth and high oil and gold imports affected the CAD. 

Various issues, including the widening CAD, rupee depreciation vis-à-vis US Dollar, increased fiscal deficit, firm inflation along with tight liquidity through most of FY13 were a cause for deceleration in the savings and investment scenario. Foreign Direct Investment (FDI) in the construction sector declined 52% in FY13 to Rs 72.5 bn as against 152% growth in FY12. Thus, FY13 portrayed subdued investments in infrastructure and industrial capital expenditure. Construction sector’s growth rate of GDP (2004-05 prices) decelerated to 4.3% in FY13 as against 5.6% in FY12 due to the factors stated above.

The aggregate total income of the sample construction companies showed a decelerated growth of 4.9% at Rs 2137.6 bn in FY13 as against 17.4% growth seen in FY12. This outcome was as a result of the GDP slowdown and the subdued investment environment. Overall sales grew 4.3% in FY13 as against 17.5% growth recorded in FY12. Order inflows to the sector remained low and therefore the performance in this sector has been subdued. Delays in project execution resulting from delays in land acquisition, environment clearances from the government etc. all contributed to deceleration in revenue growth. 

Infrastructure development companies which accounted for 70.5% of the sample construction companies had a share of 89% of total income of the sample 85 companies. Total income of infrastructure development companies at Rs 1,901.7 bn saw slower growth of 5.5% in FY13, compared with 20.2% growth in FY12. Sales growth also decelerated to 5% in FY13 as compared with 20.2% in FY12. 

Real estate companies that accounted for 29.4% of the sample construction companies had a share of 11% of the total income of sample 85 companies. Total income of real estate companies grew 1.1% at Rs 235 bn in FY13 as compared with a decline of 0.4% in FY12, indicating a marginal improvement. Sales for real estate companies in FY13 saw a negative growth of 0.3% in FY13 as against a decline of 1.3% in FY12. High interest rate environment in FY12 and FY13, slowdown in the economy, subdued investment scenario and high inflation has impacted consumer demand. The repo rate cut by the RBI in FY13 may have helped in the marginal improvement in the performance of real estate companies along with the increased focus of some companies on affordable housing segment. 

Depreciation and interest expenses surge in FY13

The overall expenses of the sample construction companies saw a decelerated growth of 6.8% in FY13 at Rs 2,080.6 bn as against 17.8% growth in FY12, in line with the revenue growth trend. Total expenses of infrastructure development companies showed a decelerated growth rate of 7.4% in FY13 as compared with 20.7% growth in FY12. On the other hand, real estate companies witnessed accelerated growth of 2.3% in total expenses in FY13 as against 0.3% growth in FY12. 

Moderation in domestic cement and steel prices in FY13 on account of subdued demand translated into the share of raw material costs in total expenses coming down to 35.6% in FY13 down from 37.7% in FY12. Raw material costs of sample construction companies’ surged marginally by 0.8% to Rs 740.1 bn in FY13 compared with Rs 734.5 bn and 26.8% growth in FY12. 

Depreciation charges for sample construction companies saw accelerated growth of 11.7% at Rs 40.4 bn in FY13 vs.10.5% growth in FY12. Additions made to gross fixed assets for expansion was responsible for this growth. Gross fixed assets grew 24.5% in FY13 at Rs 778.7 bn as compared with 11.5% growth in FY11. This was mainly driven by a rise in intangible assets at Rs 117.3 bn in FY13 from Rs 30.1 bn in FY12.The overall depreciation cost formed 1.95% of total expenses in FY13 vs. 1.86% in FY12. 

Interest expense of overall sample companies saw the highest growth rate as compared to any other component. It increased to 23.6% in FY13 at Rs 144.5 bn compared with 31.2% growth in FY12. The increase in interest expense may be attributed to higher debt levels, which grew 9.8% over the previous year, along with a tightened monetary policy and firm interest rates in the economy in FY13. Though RBI cut repo rate by 100 bps in FY13, it stood high at 7.5% as on Mar 2013. Further, average borrowing cost for sample construction companies rose to 11.2% in FY13 compared with 10.4% in FY12. Share of interest cost to total expenses has grown from 5.4% in FY11 to 6% in FY12 and to 6.9% in FY13. 

Margins came under pressure primarily due to increased interest cost burden for FY13

Earnings Before Interest Depreciation and Tax Adjustment (EBIDTA) for sample construction companies saw decelerated growth of 1.7% at Rs 396.5 bn in FY13, compared with 5.6% growth in FY12. Further, EBITDA margin for sample construction companies dropped to 18.6% in FY13 from 19.2% in FY12 and 21.3% in FY11. 

EBIDTA for infrastructure development companies saw subdued growth of 1.3% in FY13 compared with 11% growth in FY12. EBITDA margin for infrastructure development companies also dropped to 15.8% in FY13 from 16.5% in FY12. On the other hand, EBIDTA for real estate companies grew 2.6% in FY13 vs. a decline of 8.6% in FY12. EBITDA margin for real estate companies improved with a 40.5% margin in FY13 from 39.9% in FY12. 

Overall net profit growth of sample construction companies decreased to Rs 126.4 bn in FY13 compared with Rs 146.7 bn in FY12. Net profit has declined 13.9% in FY13 compared with a 7.9% decline in FY12. Growth in total expenses of 6.8% in FY13 outpaced growth in total income of 4.9%, which led to a decline in profits. As total expenses as a percentage of total income for sample construction companies grew from 95.3% in FY11 to 95.7% in FY12 to 97.3% in FY13, NPM plunged from 9.2% in FY11 to 7.2% in FY12 to 5.9% in FY13. 

Net profit for infrastructure development companies also declined 13.1% at Rs 98.7 bn in FY13 compared with 0.7% growth in FY12. This is due to the fact that the overall expenses grew 7.4% which outpaced total income growth of 5.5% in FY13. As total expenses as a percentage of total income for infrastructure development companies grew from 95% in FY11 to 95.4% in FY12 to 97.1% in FY13, NPM dropped from 7.5% in FY11 to 6.3% in FY12 to 5.2% in FY13. 

Net profit for real estate companies however declined 16.4% at Rs 27.7 bn in FY13 compared with 28.7% decline seen in FY12. This is largely driven by 2.3% growth in total expenses which outpaced the total income growth of 1.1% in FY13. Total expenses-to-total income ratio is the highest for real estate companies which have seen an increase from 97.2% in FY11 to 97.9% in FY12 and to 99.1% in FY13. NPM for real estate companies has therefore seen a decline from 19.8% in FY11 to 14.2% in FY12 and to 11.8% in FY13. Compared with infrastructure development companies, real estate companies have registered higher margins.

Construction companies’ ability to meet interest obligations suffered in FY13

Total borrowings to fund capital expenditure and to meet working capital requirements for sample construction companies grew 9.9% at Rs 1, 351.6 bn in FY13 compared with a growth of 19.6% in FY12. Thus, the growth in borrowings is derived from 11.6% rise in working capital and a 24.5% growth in gross fixed assets in FY13. Net worth for sample construction companies grew 5.7% at Rs 1,716.7 bn in FY13 compared with 7.8% in FY12. Debt to equity ratio increased 0.79 times in FY13 from 0.76 times in FY12. This is due to growth in debt outpacing the growth in net worth. 

Borrowings for infrastructure companies grew14.4% at Rs 974.7 bn in FY13 as against 26.9% growth in FY12. In comparison, net worth for these companies surged 6.8% at Rs 1,110.3 bn in FY13 against 8.8% growth in FY12. As a result, debt to equity ratio rose to 0.87 times in FY13 compared with 0.82 times in FY12. 

On the other hand, for real estate companies, borrowings in FY13 declined 0.4% at Rs 376.9 bn compared with a 5.9% growth in FY12. Net worth for these companies increased 3.7% in FY13 at Rs 606.4 bn against a 6% growth in FY12. Therefore, debt to equity ratio dropped to 0.62 times in FY13 compared with 0.65 times in FY12. 

High leverage, firm interest rates, and deteriorating margins resulted in a decline in interest coverage ratio for sample construction companies to 2.5 times in FY13 from 3 times in FY12 and 3.8 times in FY11. Even though debt to equity ratio is less than 1times, declining interest coverage ratio, EBITDA margins, and increase in interest expenses suggest that construction companies have rising debt piles, servicing which is affecting profit margins. EBIT for sample construction companies grew only 0.6% in FY13 compared with 5.2% in FY12. On the other hand, interest expense grew 23.7% in FY13 (31.2% in FY12). Thus, the decline in interest coverage ratio is attributed to growth in interest expense outpacing growth in EBIT in FY13. 

For real estate companies, interest coverage ratio dropped 2.16 times in FY13 from 2.26 times in FY12 and for infrastructure development companies the interest coverage ratio fell 2.6 times in FY13 from 3.4 times in FY12. 

Return for investors declined in FY13 vis-à-vis FY12

ROCE of sample construction companies dropped to12% in FY13 from 13.1% in FY12, mainly fuelled by the increase in capital employed at a higher pace of 9.8% compared with an EBIT growth of 0.6% in FY13. RONW declined at 7.6% in FY13 from 9.4% in FY12 due to a decline in net profit of 13.9% whereas net worth increased 5.7% in FY13. 

For real estate companies, ROCE remained relatively flat at 9.3% in FY13 vs. 9.5% in FY12. Also, RONW for these companies dropped to 4.7% in FY13 from 5.8% in FY12. For infrastructure development companies, ROCE fell to 13.3% in FY13 from 15.1% in FY12 and RONW fell to 9.2% in FY13 from11.4% in FY12. 

Quarter Updates: Construction Sector 

NPM plunged from 6.6% in Q1FY 13 to 3.5% in Q1FY 14 primarily owing to increased interest costs

For performing quarterly analysis, 95 construction companies out of all the construction companies featured in the publication were used for gaining financial insights. 

Total income of sample construction companies for Q1FY14 increased 0.5% to Rs 488,196.4 mn compared with the corresponding quarter of FY13. However, in Q1FY13 total income saw higher growth of 12.8% compared with the corresponding quarter of FY12. 

In Q1FY14, net sales of all the construction companies surged 0.9% to Rs 465,355.3 mn while total expenses increased at a higher rate of 4.1% to Rs 485,844.3 mn compared with the corresponding quarter of FY13. Earnings Before Depreciation, Interest, and Tax (EBDIT) declined 13.5% and net profit declined 46% to Rs 17173.7 mn in Q1FY14 compared with the corresponding quarter of previous year. Decline in net profit is mainly because of income rising at a slower pace than total expenses. Total expenses as a percentage of total income increased to 99.5% in Q1FY14 from 96.1% in Q1FY13 and 94.8% in Q1FY12. Growth in salary and wages, interest expenses, and depreciation charges mainly drove the increase in expenses for the quarter. The study also revealed that rise in interest expenses led to decline in interest coverage ratio for Q1FY14 to 1.9 times from 2.5 times in Q1FY13 and 3.1 times in Q1FY12. 

NPM dropped to 3.5% in Q1FY14 from 6.6% in Q1FY13 and 7.7% in Q1FY12. Similarly, EBDIT margin plunged to 16.2% in Q1FY14 from 18.8% in Q1FY13 and 19.3% in Q1FY11. 

On trailing twelve months (TTM) basis, income for construction companies from July 2012 to June 2013 increased 2.5% compared with the corresponding previous twelve months. Net sales grew 1.9% whereas total expenses grew 4.3%. From July 2012 to June 2013, total expense as a percentage of total income increased to 96.2% from 94.6% during July 2011 to June 2012. Thus, net profit declined 24%, as growth in total expenses outpaced growth of total income and EBDIT plunged 3.8%. Growth in interest expenses, depreciation, salaries, and wages primarily led to growth in expenses. Rise in interest expense resulted in a decline in interest coverage ratio for the same twelve months to 2.3 times from 2.9 times in the corresponding previous twelve months.

On TTM basis, NPM for the period from July 2012 to June 2013 dropped to 5.1% from 6.9% in the corresponding previous twelve months and EBDIT margin declined to 16.7% from 17.8%. 

Section B: Comparative analysis of public and private power companies 

Dun & Bradstreet (D&B) has attempted to capture the current trends in the Indian power industry through operational and financial analysis of power companies. The sample selected for this analysis comprises power companies featured in the publication whose comparable financial information for the last three years (FY11-FY13) was available. Thus, from the featured 20 power companies in the publication, we arrived at a list of 15 power companies for performing the analysis. The selected power companies operate in the generation, distribution, and transmission segments.

The 15 power companies have been classified into privately owned and publicly owned (both central and state owned) companies based on ownership, to capture the dynamic nature of the power industry. Accordingly, power companies have been classified into nine private and six public power companies for analysis. 

Sample power companies outperform the industry in terms of installed capacity and generation growth in FY13

During FY13, the sample power companies considered for the study contributed 43.2% and 32.6% of the India’s overall power generation and installed capacity respectively compared with 40.2% and 30.6% in FY12. Of the sample power companies, public companies had greater share, accounting for 30.36% (30.42% in FY12) and 20.4% (21.4% in FY12) of India’s total generation and installed capacity in FY13. 

Further, the study revealed that although the private companies accounted for a lesser share in India’s total generation and installed capacity, their share has increased YoY. Private companies accounted for 12.9% (9.5% in FY12) and 12.2% (9.1% in FY12) of India’s total generation and installed capacity in FY13. 

Sample power companies’ share in industry’s generation and installed capacity: FY13 

The sample companies outperformed the overall industry in FY13 in terms of generation and capacity growth. India’s generation and installed capacity grew 4% and 11.7% respectively in FY13 whereas the sample power companies registered better growth of 11.8% in generation and 19.3% for installed capacity. Private companies, which recorded a growth of 36.7% in generation and 49.4% in installed capacity in FY13 primarily, drove this growth. This reflects the government’s initiative of encouraging private sector participation in the power sector, which has led to capacity expansion of private companies. 

During FY13, public companies outperform private peers in terms of income growth

During FY13, sluggish economic conditions, slowdown in industrial production, and uncertain policies along with sector specific issues impacted India’s power sector. The sector confronted challenges such as deteriorating financial health of state distribution companies (Discoms), issues related to Power Purchase Agreements (PPAs), domestic fuel shortages, delays in land acquisition, environmental, and forest clearances, thus, impacting investor sentiment. 

During FY13, the power sector has seen slow growth in IIP at 4% as against 8% in FY12 and 5.7% in FY11. In FY13, India experienced a power deficit of 8.7% and peak demand deficit of 9%. Electricity generation in India saw decelerated growth of 4% in FY13 compared with 8.1% in FY12 and subdued performance by hydro and nuclear power plants. However, thermal power plants registered a slight improvement of 7% in generation in FY13 compared with 6.6% in FY12. India’s total installed generating capacity also saw decelerated growth of 11.7% in FY13 compared with 15.1% in FY12. 

On the back of the slowdown in economic growth and the various sector-specific challenges, total income of sample power companies saw decelerated growth of 8.7% in FY13 to Rs 1,488.9 bn compared with Rs 1,369.4 bn and 17.7% growth in FY12. 

Public (government owned) companies, which represent 40% of sample 15 companies had maximum share of 68.34% of total income of sample companies. On the contrary, privatelyowned companies representing 60% of the sample power companies had share of only 31.7% of total income of sample companies. However, the share of private companies in aggregate total income has improved from 28.8% in FY11 to 31.7% in FY13. 

During FY13, public companies performed better than private peers in terms of total income growth, registering 9.5% growth in FY13 (12.3% in FY12) compared with 7.1% for private companies (31.4% in FY12). During FY13, overall sales of sample power companies saw decelerated growth of 6.8% to Rs 1,350.3 bn in FY13 against 19.2% growth in FY12. Public companies registered marginally higher growth of 7% in sales in FY13 (13.9% in FY12) compared with 6.4% growth for private companies in FY13 (31.4% in FY12).

Raw material costs account for more than half of the total expenses of power companies

During FY13, total expenses incurred by sample power companies saw decelerated 8.6% growth in FY13 to Rs 1,257.1 bn compared with 20.9% growth in FY12 in line with decelerated sales growth. 

Raw material costs saw marginal 0.1% growth in FY13 compared with 26.9% growth seen in FY12. Coal is the key raw material used in power generation. Raw material costs form the major cost component with 50.1% share in total expenses in FY13 down from 55.2% share in FY12. The decline in raw material costs to total expense ratio was due to the softening of international thermal coal prices in FY13 along with better supply of domestic coal from previous year and decelerated growth in imported coal in FY13. India’s coal production saw accelerated growth of 3.3% to 557.7 mn tons in FY13 compared with 1.4% growth seen in FY12 whereas India’s coal imports saw decelerated 33.7% growth to 140.6 mn tons in FY13 compared with 49.4% growth in FY12. During FY13, thermal power generation from coal (accounting for 83.4% India’s total power generation) saw accelerated growth of 7.3% vs. 6.6% in FY12. Thus, despite the higher generation by coal-based stations in FY13, overall coal cost was lower compared with previous year. 

Compensation to employees has grown 7.8% in FY13 compared with 15.7% in FY12. This growth in employee expenses may be attributed to additional commercial capacity and increase in salaries of employees. However, personnel cost as a percentage of total expenses has declined marginally from 7.8% in FY12 to 7.7% in FY13. 

Interest expense saw significant growth of 39.8% in FY13 vis-à-vis 29.8% growth in FY12, owing to high interest rate environment in FY13 and 16.9% growth in debt of the featured companies. Average borrowing cost for sample power companies increased to 4.9% in FY13 against 4.3% in FY12. Interest expense as a percentage of total expense has grown from 6.5% n FY12 to 8.3% in FY13, which may be attributable to raising fresh borrowings at high interest rates. 

During FY13, additions in gross fixed assets, which grew 21.6% in FY13 compared with 19.8% in FY12 mainly caused the depreciation charges to grow 23.6% compared with 15.9% in FY12. One of the reasons for increase in fixed assets may be attributable to increase in capital expenditure and commissioning of new power plants. 

Improvement in margins owing to declining raw material costs

During FY13, EBITDA margin of the sample power companies increased from 35.8% in FY12 to 38.8% in FY13. The major items driving growth in EBITDA, which grew 17.9% in FY13 vs. 9.6% in FY12 was decelerated growth in raw material costs. 

However, NPM (net profit margin) remained nearly flat and marginally grew from 15.6% in FY12 to 15.8% in FY13. This was due to a marginal decrease in share of total expenditure as a percentage of total income from 84.6% in FY12 to 84.4% in FY13. The major items driving growth in total expenditure were the rising interest costs, depreciation charges and tax provisions which impacted net profit margin in FY13. Net profit grew 10.3% in FY13 vs. 2% in FY12 primarily due to substantial net losses incurred by one of the major private sector power companies. However, excluding the impact of the losses incurred by the particular private sector power company, the sample companies registered net profit growth of 17.8% in FY13 against 6.1% in FY12. 

Public companies registered a growth of 22.9% in net profit in FY13 compared with 9.2% growth in FY12. However, private companies registered a decline of 53.5% in net profit in FY13 compared with 23.4% decline in FY12 primarily due to substantial net losses incurred by one of the major private sector power companies. However, excluding the impact of the losses incurred by the particular private sector power company, the sample companies registered a decline in net profit of 6.1% in FY13 against a decline of 6.4% in FY12.

Government owned companies outperformed private peers in terms of profit margins. EBITDA margin of public companies stood at 43.7% in FY13 (39.5% in FY12) compared with 28.1% in FY13 (27.7% in FY12) for private companies. Similarly, NPM of public companies stood at 21.5% in FY13 (19.2% in FY12) compared with 3.5% in FY13 (8% in FY12) for private companies. This highlights better profitability for public companies, which are better positioned to control costs compared with private companies, which faced a decline. Total expenditure as a percentage of total income for public companies stood at 78.5% and at 97.3% for private companies in FY13. 

Growth in debt financing outpaces that of equity during FY13 resulting in higher debtequity ratio

Debt-Equity ratio for power companies has grown over the past three years from 0.9 times in FY11 to 1.01 times in FY12 to 1.1 times in FY13. The growth in borrowings outpaced growth in net worth during FY13. Total borrowing grew 16.9% (23.2% in FY12) against 8% growth of net worth (8.4% in FY12), resulting in an increase in the debt-equity ratio. This suggested that the sample power companies were aggressive in funding their growth with debt to finance significant growth of 21.6% in gross fixed assets for capacity expansion. Long-term bank borrowings stood at Rs 641.2 bn and grew 16.3% in FY13 because of the growth in fixed assets. In FY13, power companies off loaded their short-term bank borrowings, which declined 25.3% in FY13 against 73% growth in FY12. This resulted in decline in short-term liquidity of these companies and their ability to meet short-term obligations with liquid assets. 

The current assets and current liability grew 4.4% and 11.2% respectively leading to the working capital of the sample companies declining 7% in FY13. Further, the current ratio of the sample power companies decreased from 1.6 times in FY12 to 1.5 times in FY13. Thus, in FY13, the bank borrowings structure changed as power companies obtained more long-term bank loans, which accounted for 89% of total bank loans in FY13 against 83.9% in FY12. Short-term loans constituted 11% of total bank loans in FY13 against 16.1% in FY12. 

Debt-Equity ratio for private companies grew from 1.4 times in FY12 to 1.5 times in FY13, which was higher compared with public companies. Debt-Equity ratio for public companies stood at 1 times in FY13 against 0.9 times in FY12. 

Power sectors’ ability to meet interest obligations suffers

As the interest costs growth of 39.8% in FY13 outpaced 16.4% growth in EBIT, it impaired the interest coverage ratio of power companies. Interest coverage ratio for the sample companies stood at 4.3 times in FY13 against 5.2 times in FY12 and 6.3 times in FY11. Thus, the sectors’ ability to service debt costs through profits has weakened. Interest coverage ratio of both public and private sector companies declined from 7.7 times in FY12 to 6.8 times in FY13 and from 2.6 times in FY12 to 1.9 times in FY13 respectively. Noticeably, interest coverage ratio of public companies was higher compared with private peers, indicating their greater ability to meet interest obligations.

 

As on Mar 31, 2013, as per the CDR cell, 18 cases from the power industry have been referred for corporate debt restructuring (CDR) and debt of Rs 184.6 bn have been repackaged under the CDR norms against nine cases with approved debt of Rs 48.4 bn in FY12. 

Return for investors’ declines during FY13 in case of privately owned companies

RONW of the sample power companies grew marginally from 11.6% in FY12 to 11.8% in FY13 mainly due to 10.3% growth in net profit during FY13, which outpaced 8% growth in net worth. This indicates better efficiency of the sample companies in generating profits from every unit of owner’s funds. On the contrary, RONW of private companies has declined from 7.8% in FY12 to 3.4% in FY13 due to a significant 53.5% decline in net profit. Public companies registered a growth in RONW from 12.8% in FY12 to 14.5% in FY13.

ROCE of the sample power companies also increased from 10.8% in FY12 to 11.1% in FY13 primarily due to 16.4% growth in EBIT during FY13. On the contrary, ROCE of private companies declined from 9.2% in FY12 to 8.3% in FY13 due to decelerated EBIT growth of 2.2%. Public companies registered a growth in ROCE from 11.5% in FY12 to 12.2% in FY13. 

Outlook

With higher scale of electrification and growing household incomes, the demand for electricity is moving northwards for better quality of life. The all India per capita consumption of electricity however, stood at a low 879.2 kWh in FY12. India faces severe shortages of electricity. Around 25% of the Indian population lacks basic access to electricity, while electrified areas grieve from rolling electricity blackouts. Thus, there are tremendous opportunities for growth and investment in the power sector to overcome energy shortages. 

The government has undertaken many initiatives for the development of the power sector including permitting 100% FDI through the automatic route, setting up of ultra-mega power projects, encouraging private sector participation through PPPs, and rural electrification program. Further, the government has permitted foreign investments up to a limit of 49% in power trading. 

Quarterly Performance of Power Companies 

EBDIT margin surged from 32.5% in Q1FY13 to 37.1% in Q1FY14 primarily due to decline in raw material costs

For performing quarterly analysis, 16 power companies out of all the power companies featured in the publication have been used for gaining financial insights. 

Total income of the sample power companies saw decelerated growth of 1.9% in Q1FY14 to Rs 41.4 bn compared with 13% growth seen in Q1FY13 vis-à-vis the corresponding quarter of the previous year. In Q1FY14, net sales of sample power companies grew 2% to Rs 346.9 bn vis-à-vis 14.1% in Q1FY13 compared with the corresponding quarter of previous year. 

EBDIT grew 16.2% in QFY14 compared with 1.1% growth seen in Q1FY13 during the corresponding quarter of previous year. Drop in raw material costs mainly fuelled this growth. Raw material cost accounted for more than 50% of the total expenses and declined 8.8% in Q1FY14 compared with the corresponding quarter of the previous year. Raw material expense as a percentage of total expenses declined from 58.6% in Q1FY13 to 52.1% in Q1FY14. This may be attributed to the accelerating domestic coal supply and decelerating import costs of coal. Consequently, EBDIT margin grew from 32.5% in Q1FY13 to 37.1% in Q1FY14. 

Total expenses marginally increased 2.5% to Rs 320.7 bn in Q1FY14 compared to 19% growth in Q1FY13 over corresponding quarter of previous year. Since growth in expenses marginally outpaced growth in income, total expense as a percentage of total income remained nearly flat at 87.5% in Q1FY14 as compared to 87% in Q1FY13. As a result, NPM also remained stagnant at 12.8% in Q1FY14 compared to 13% in Q1FY13. 

Interest expense, depreciation charges, salaries, and wages grew 34.3%, 23.6%, and 9% respectively in Q1FY14 for the corresponding quarter of the previous year. Interest expense as a percentage of total expense grew from 7.8% in Q1FY13 to 10.2% in Q1FY14. Depreciation charges as a percentage of total expenses increased from 9% in Q1FY13 to 10.8% in Q1FY14. Similarly, employee costs-to-total expenses ratio surged from 7.3% in Q1FY13 to 7.8% in Q1FY14. Growth in these expenses had an impact on the NPM. The study also revealed that growth in interest expenses led to decline in interest coverage ratio for Q1FY14 to 3.1 times from 3.6 times in Q1FY13 and 5.3 times in Q1FY12. 

On trailing twelve months (TTM) basis, income for sample power companies from July 2012 to June 2013 grew 5.4% for the corresponding previous twelve months. Net sales grew 4.9% whereas total expenses grew 4.1% and EBDIT grew 21% compared with the corresponding previous twelve months. EBDIT margin for the period from July 2012 to June 2013 grew to 38.6% from 33.6% for the period from July 2011 to June 2012. This is due to decline in raw material costs of 3.4%. Further, raw material expense as a percentage of total expense declined from 58.4% to 54.2%. NPM also increased from 14.6% to 15.9%, as total expenses as a percentage of total income dropped from 85.5% for July 2011 to June 2012 to 84.5% for July 2012 to June 2013, since growth in total income outpaced growth in total expenses. 

Interest expense saw 32.5% growth from July 2012 to June 2013 for the corresponding previous twelve months and interest expense as a percentage of total expenses increased from 7.3% for July 2011 to June 2012 to 9.3% for July 2012 to June 2013. Thus, interest coverage ratio declined from 4.2 times to 3.9 times.