These half-year results from Essar Energy (ESSR), the Anglo-Indian oil and power conglomerate, aren’t very flattering. But strip out inventory timing differences and foreign exchange losses, and the company’s cash profit surged 193 per cent thanks to strong margin improvements at its refining business.
The company’s $350m (£219m) acquisition of Shell’s Stanlow refinery last year, along with the recently completed upgrade to capacity and complexity at the Vadinar refinery, provide Essar investors with a glimmer of hope that growth is finally on the horizon. That said, Essar’s power business continues to underperform. Water sourcing at several power plants remains a problem and it will still be at least 15 months before coal mining at Mahan begins.
Cash profits calculated using current oil prices rose to $583m for the six months to 30 September, up from $199m in the corresponding period from January-June 2011 (Essar recently changed its accounting period). This is the metric most analysts focus on, as it strips out gains and losses in the value of crude inventories due to oil price fluctuations.
Meanwhile, challenges remain aplenty for Essar. The company has borrowed heavily to fund much of its current growth and it now owes over $8.4bn. The debt level may not have peaked yet, either, given that some of its Indian projects are not fully operational.
Broker Deutsche Bank forecasts EPS of 3¢ for the current fiscal year rising to 17¢ in 2013, compared with 10¢ in the prior period.
ESSAR ENERGY (ESSR) | ||||
|---|---|---|---|---|
| ORD PRICE: | 124p | MARKET VALUE: | £1.6bn | |
| TOUCH: | 124-125p | 12-MONTH HIGH: | 255p | LOW: 99p |
| DIVIDEND YIELD: | nil | PE RATIO: | na | |
| NET ASSET VALUE: | 242¢ | NET DEBT: | $8.4bn | |
| Half-year to 30 Sep | Turnover ($bn) | Pre-tax profit ($m) | Earnings per share (¢) | Dividend per share (p) |
|---|---|---|---|---|
| 2011 | 6.53 | 279 | 13.5 | nil |
| 2012 | 12.8 | -283 | -13.8 | nil |
| % change | +96 | - | - | - |
£1=$1.60 | ||||
