The share price of
Essar's profits were hit by a net charge of $656m (£413m) after the Indian court ruled against it over a matter relating to deferred state sales tax. Essar is seeking a judicial review of the decision, but a provision of $1.14bn was included in the balance sheet to reflect the potential liability to the state of Gujarat. Essar also suffered from the rapid weakening in the rupee last year, prompting a $303m foreign-exchange loss.
Even if you exclude these factors, Essar's cash profits of $625m (£394m) still came up short of consensus estimates, and were 10 per cent down year on year. A positive note was provided by a one-fifth hike in Essar'’s Indian refining and marketing revenues, while the key Vadinar refinery expansion remains on target.
The Gujarat decision, together with a 60 per cent rise in underlying net debt to $5.7bn, has prompted Essar to review its capital commitments. It has already reassessed three power projects – Salaya 2 & 3 and Neptune 1 – while giving notice that it may not participate in a proposed capital raising by its subsidiary Essar Oil.
Deutsche Bank anticipates 2012 EPS of 20¢ (from 6¢ in 2011)
| ESSAR ENERGY | ||||
|---|---|---|---|---|
| ORD PRICE: | 123p | MARKET VALUE: | £1.6bn | |
| TOUCH: | 122-123p | 12-MONTH HIGH: | 531p | LOW: 108p |
| DIVIDEND YIELD: | nil | PE RATIO: | na | |
| NET ASSET VALUE: | 266¢ | NET DEBT: | 155% | |
| Year to 31 Dec | Turnover ($bn) | Pre-tax profit ($m) | Earnings per share (¢) | Dividend per share (¢) |
|---|---|---|---|---|
| 2009 | 7.02 | 286 | 17.0 | nil |
| 2010 | 10.0 | 366 | 17.1 | nil |
| 2011 | 14.9 | -881 | -39.1 | nil |
| % change | +49 | – | – | – |
|
£1=$1.586 |
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IC VIEW:
Essar's deteriorating capital health increases near-term uncertainties, but Vadinar does provide some cause for optimism. And Essar's shares – at 123p – are hardly tempting at 10 times forward earnings. Hold.
Last IC view: Fairly priced, 255p, 23 Aug 2011
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