Mumbai: Neyveli Lignite is embarking on a expansion plan with the company seeking to take up two coal based mega projects. These include a 1,000 MW power plant at Tuticorin, involving an investment of Rs 40 billion as a joint venture with Tamil Nadu Electricity Board and the 2,000 MW plant in the Ib Valley of Orissa involving an investment of Rs 80 billion. Since these projects have got the mega status granted to these projects will allow capital equipment import at zero duty.

The company has also got all satutory approval for its 2.1 m ton lignite mine in Rajasthan and power plants involving an investment of Rs 13.5 billion. NLC has also offered to take over the proposed private sector lignite-based 1,000 MW power project at Jayamkondam from the Tamil Nadu Electricity Board. With its power plant located at pit-head, NLC will continue to be a low cost power producer. The company has aggressive expansion plans to add generation capacity.

Revenue growth backed by higher generation Revenues grew by 6.6% to Rs9.8b in 4QFY04 and by 8.6% to Rs28b in FY04, in line with our expectations. Power generation grew by 9.5% from 14,970m units in FY03 to 16,389m units in FY04 mainly due to the commissioning of a 210x2 MW power plant. Revenue growth was lower than volume growth, as the company has assumed tariff at Rs1.97 per unit as against Rs1.99 per unit in the previous year.

The increase in production is also due to better utilization of NLC''s TPS-I power plant, which has achieved a plant load factor (PLF) of 84%, the highest so far. As a central public sector undertaking, NLC''s tariffs for each plant have to be approved by the Central Electricity Regulatory Commission (CERC). Most of NLC''s plants are overdue for tariff revision now. In fact, CERC has to approve tariffs for some plants for FY02 and FY03, as well.

The adjusted net profit for 4QFY04 has increased by 41%.For the full year, however, net profit has grown by a marginal 0.9% to Rs9.4b from Rs9.3b in FY03. This is after adjusting for interest on 8.5% tax-free power bonds for the prior period and Rs 520m provision made towards adjustment in tariff.

With the company commissioned its new power plant in FY04, the depreciation charge and interest costs are higher by Rs 2.4 billion and Rs 651million, respectively. This has led to a 3.2% drop in the recurring pre-tax profit.

The company''s other income includes interest from 8.5% tax-free bonds, received from state electricity boards as part of the one time settlement scheme. This interest income would be recurring in future years, too.

NLC has changed the method of calculating depreciation. The change was effected since the Electricity Act applicable to the company was repealed, which warranted calculation of depreciation as per Schedule XIV of the Companies Act. Hence, depreciation charge for FY04 is lower by Rs 354 millon.