Revenue growth for Power Grid Corporation of India (Power Grid) — the country’s principal power transmitter — depends mainly on expansion in transmission capacity. Capacity addition at a steady pace in the past has helped the company report 26.5 per cent higher revenue in the September quarter compared to the year-ago period.
Net profit growth at 10 per cent was slower due to rising costs. In particular, finance cost more than doubled, largely due to accounting of interest expense on completed projects.
Power Grid, under the regulated return model, is entitled to pass on costs and is also assured of a return on equity of 15.5 per cent on commissioned projects. Project completion worth Rs 7,075 crore so far this year, though lower than in the last fiscal, is expected to pick up after the seasonally weak second quarter. Capital expenditure of Rs 11,500 crore incurred so far this year is more than half the targeted expenditure for FY-14. Like in the past, this should translate into robust project completion and revenue growth in the years ahead.
Power Grid with near-monopoly in inter-regional and inter-state power transmission, will benefit from expansion in the country’s transmission capacity.
Its investment target in the 12{+t}{+h} Plan (2012-17) is Rs 1.1 lakh crore, of which contracts worth Rs 80,000 crore have already been awarded as on July 2013. The company has also forayed into intra-state transmission beginning with Bihar and Orissa. Implementation of the Smart Grid Project will help it cut down transmission losses and improve demand management.
Fresh equity issue of 13 per cent of existing capital by Power Grid and 4 per cent stake divestment by the government, expected in December, may weigh on the stock price in the near-term. But the funds raised will help meet the equity portion of new project funding under the regulated return model. This should aid revenue and profit growth.
ACC: Weighed down by high costs
In the September quarter, ACC’s consolidated sales fell 1 per cent year-on-year while net profits fell 50 per cent . Though sales volumes increased 2.6 per cent to 5.54 million tonnes, profits plunged due to lower realisation and a sharp increase in costs.
Cost of raw materials increased to 19.8 per cent of sales from 14 per cent last year. Freight expenses also rose with higher diesel prices and costlier railway freight charges.
There was also higher outgo on employee benefit schemes. Power and fuel costs were flat, thanks to improved efficiency of the plants. ACC’s operating margin at 11.4 per cent was down over 7 percentage points over last year.
Weak demand conditions meant that the company could not pass on cost increases. In the South — the company’s key market — sales were disrupted due to the agitations over Telangana. All-India average cement prices in the September quarter were down 2 per cent over the June quarter and 5 per cent over the last year. ACC’s realisation in the quarter was Rs 226/50 kg bag, about four percent lower from a year ago. The company’s earnings were hit also by a lower other income (interest income from investments). Finance costs, though 57 per cent lower than last year, thanks to repayment of long-term borrowings, didn’t help the bottomline much.
Cement players are likely to see cost pressure continuing. Profit growth can come only through better realisations.
The price hikes taken by players in end-September will hold only if demand revives.
Cement companies were counting on the pre-election spending by the government, but that has not materialised well. Several infrastructure projects have been cleared by the Cabinet Committee on Investment, but orders from them are yet to flow.