Tata Power Ltd. - Powerful margins, Coal slightly sluggish.

Tata Power's Q3 result has some positives & some negatives. The company's Total Income figure was flat Y-o-Y and 2.5% lower Q-o-Q. The reason being lower revenues from Coal business because of lower Coal prices. Tata Power did well on the EBITDA margin front where it managed over 450 bps improvement over that reported in Q3 of last fiscal. Even compared to previous quarter, the EBITDA margin was slightly better. The company has attributed this improvement to strong operating performance of it's Power subsidiaries. I think there is still scope for improvement in some of the company's Power subsidiaries, which should be seen over the next 3-4 quarters.

In the following charts I have shown the T-T-M progress of Tata Power's Total Income, EBITDA, Profit before Tax & Provisions and finally the Interest Cost. Have a look:

As we can see from the charts, Tata Power's Total Income has stagnated this quarter, but the EBITDA is still showing continued strong improvement Q-o-Q. I think we will see one more such strong Q-o-Q improvement in EBITDA and then the improvements will be much slower, though it will be positive. Tata Power's T-T-M EBITDA crossed the Rs.9000 crores mark this quarter and the company has been hitting a new Best-ever figure over the last 3 quarters. I am expecting Tata Power to even hit the Rs.10,000 crores in T-T-M EBITDA sometime in the next 3-4 quarters. This surge in EBITDA over the last 3 quarters is clearly the signal that the worst pain period for Tata Power is finally over, after having struggled ever since the company jumped into the UMPP bandwagon & few other projects, all of which have faced difficulties at some level or the other.

The sharp improvement in EBITDA will ultimately lead to improved Cash Flows from operations, which will ultimately help in reducing the Debt burden to some extent and hence reduce the Interest Cost load. Tata Power has reported a Q-o-Q and Y-o-Y dip in Quarterly Interest Cost over the last 2 quarters. As of now the dip is not big, but I am expecting a little bigger drop in Quarterly Interest Cost over the next few quarters, which should help boost the company's Cash Flows further. The improved Cash Flows from existing operations will help the company pursue it's projects under implementation with a new vigour. Tata Power has also created a new Renewable Energy subsidiary and is shifting all it's Solar, Wind & Hydro assets into that subsidiary. This restructuring should help streamline it's operations as the company has big plans for Renewable Energy space.

The Net Profit of the company continues to be impacted because of various Provisions. Some of these Provisions involve Cash Payouts, while some others are just Accounting measures. Nevertheless these Provisions do pull down the company's Net Profit figure, which looks bad on the P&L. In the charts above, we can see the sharp improvement in T-T-M Profit before Tax & Provisions for Tata Power over the last 3 quarters, but unfortunately a major portion of this gain was wiped out by the various Provisions the company undertook. Hopefully the Provisions will reduce in the coming quarters and then we will see sharp improvement in the company's reported Net Profit figure.

About Valuations, I had already discussed it in my previous report on Tata Power posted couple of months ago and the company continues to trade around the same Market Cap level as then. I am clearly bullish on the possibility of Tata Power stock getting re-rated in the coming months to the tune of 50-75% over the next 12 months or so.

Just Dial Ltd. - What an amazing Sell Call it was!! Is it time to be Contra now?

I had written a report on Just Dial Ltd about 10 months ago titled "

Just Dial Ltd. - Crazy e-commerce valuations!! Nothing else!!", where I had explained my simple logic on why Just Dial's financial performance does not deserve such high valuations, unless it shows some strong signs of much better growth. Click Here to read that report. The growth rates posted by Just Dial Ltd over the last 4 quarterly results seem to have been even more disappointing because of which the stock has dropped more than 50% over the last 10 months & is now available at a price even lower than it's Listing Price.

Let's do a performance check to see if Just Dial's financial performance over the recent 4 quarters was really that bad to warrant such a sharp drop in market capitalisation and it's corresponding valuations. Have a look at the T-T-M charts below, which will give us some idea:

As we can see from the T-T-M charts above, Just Dial's Total Income has been growing at a steady pace. At a Y-o-Y growth of just under 24%, this can only be said to be decent, though Not great. The company did show some handsome growth in EBITDA & Net Profit for the periods ending Mar'15, Jun'15 and Sept'15, but has reported a small Q-o-Q dip during Dec'15. The dip in EBITDA & Net Profit during the Dec'15 quarter can be attributed to the increased costs towards pushing it's recently launched 'Search Plus' platform of services. The company is heavily banking on this new platform to bring in some handsome growth for the company in the coming quarters & years.

The 'Search Plus' platform is quite interesting & does have potential to ring in some decent revenues for the company going forward. But I think it might take some time for the concept to be widely accepted by the hundreds of Merchants & Vendors that the company is marketing it to. One point which goes against Just Dial's efforts to push Search Plus is the presence of several more e-commerce options in the market today, many of which are even dedicated to just certain specific fields. Many of these e-commerce services are currently well funded by various VC funds and hence are aggressively marketing their services. At the same time the Indian consumer is still pretty new to transacting online, though the percentage of population trying their hand at it is increasing with every passing month. There is no doubt that the market size is huge & many of these e-commerce players can develop their business models to become successful. But it will take a year or two more for things to mature & by then we could even see some players windup their businesses, especially the ones who are burning cash at a fast pace and not generating enough revenues to sustain themselves.

What goes in Just Dial's favour is that it is a Profit making company & is generating decent amount of Cash every quarter. Not many portals or e-commerce related companies can claim to be profitable currently in India. Just Dial also has a decent amount of Brand recognition in the market. Since Just Dial is not getting into directly selling any goods on it's own, it doesn't have to invest in any kind of inventory or warehousing. Under the Search Plus business model, it will be creating an e-commerce front end for many of it's Registered Merchants/Vendors, something like a 'Shop on the Internet', and Just Dial will be earning Fee Income based on the number of transactions or Visibility that the Merchant gets (Display Ads). These things will take some time to pick up and till then revenues from this new platform may not add much to the company's Topline.

Valuations: At a share price of around Rs.570/-, Just Dial Ltd. is currently valued at about Rs.4000 crores, sharply lower than the Rs.9000+ crores valuation the last time I had written about it 10 months ago. At this valuation it trades at about 26 times it's T-T-M Net Profit of Rs.154 crores and about 22 times it's T-T-M Cash Profit of about Rs.182 crores. These valuations now do not sound expensive for the 22-23% Y-o-Y growth it has reported on T-T-M numbers, despite a negative growth in Profit in Dec'15 quarter alone. At a Market Cap of Rs.4000 crores, Just Dial is no more over-valued. In fact, for those who currently don't have any exposure to Just Dial, it makes sense to add Just Dial to their portfolio. Though I won't recommend a big exposure as there are still good amount of risks involved in this business. Just Dial though gives you an opportunity to try & be a part of the e-commerce bandwagon and is surprisingly now available at a reasonable valuation. Any further correction from current levels will only make it more attractive. But remember that one might need to wait for some time for the 'Search Plus' platform to start building momentum, which in turn could drive Just Dial's share price in the future. The current positives are: Just Dial is a Debt-free company with a decent amount of Cash Reserve. And the business continues to generate decent amount of Free Cash every quarter. There is also the possibility of Just Dial using a part of it's Cash to do a Buy-Back of it's shares in the near future, which could help drive the valuations higher in the near term.