Tata Power Co. said on Wednesday that its profit attributable to shareholders rose 48.6% in the September quarter to INR 13.66 billion, the highest quarterly profit in its history, as revenue from operations climbed 26% to INR 196.36 billion. A year earlier the Tata group utility earned INR 9.19 billion on revenue of INR 155.45 billion.

The result gives investors in Asia a read on how India's largest integrated private power companies are converting a surge in electricity demand and clean energy spending into earnings. It also shows the cost of that growth: the company's operating margin narrowed sharply as fuel bills jumped, and it committed to another large capital project on the same day.

Including minority interests, consolidated net profit rose to INR 16.52 billion from INR 12.45 billion, according to the company's regulatory filing as reported by the Free Press Journal. Profit before tax increased to INR 21.80 billion from INR 16.80 billion. Basic earnings per share rose to INR 4.27 from INR 2.88.

Tata Power margins narrow as fuel costs triple

Earnings before interest, taxes, depreciation and amortization rose 11% to INR 36.68 billion from INR 33.02 billion, Upstox News reported. That was far slower than revenue growth, and the EBITDA margin fell to 18.68% from 21.24% a year earlier.

Fuel was the main reason. Fuel costs rose to INR 46.33 billion in the quarter from INR 13.47 billion a year earlier, the filing showed, while power purchase costs increased to INR 62.45 billion from INR 56.64 billion. Total expenses climbed to INR 186.41 billion from INR 147.24 billion.

The bottom line also had help from a one-time item. Tata Power booked a gain of INR 3.17 billion after it stopped treating Tata Projects Ltd. as an associate, partly offset by impairment charges of INR 1.98 billion, leaving a net exceptional gain of INR 1.19 billion.

Measured against the June quarter, attributable profit rose 16.2% from INR 11.76 billion and revenue rose 3.1%. For the first half of the fiscal year, attributable profit rose 28% to INR 25.42 billion on revenue of INR 386.87 billion, up 15%.

Renewables spending and a new pumped storage plant

The company spent about INR 100 billion on capital projects in the first half, about INR 60 billion of it on renewables, according to Upstox News. It added 765 megawatts of clean generation capacity in the period, taking its total installed capacity to 8.6 gigawatts.

Its solar factories produced 0.9 GW of cells and 1 GW of modules in the September quarter, and 1.8 GW of cells and 2 GW of modules over the half year. In Odisha, where Tata Power runs electricity distribution companies, aggregate technical and commercial losses improved 5.7% from the June quarter.

The board also approved an investment of INR 118.71 billion in an 1,800 MW pumped storage project at Shirwata in Maharashtra. The project is expected to take 51 months to complete and will be funded with 75% debt and 25% equity, Upstox News reported. Pumped storage plants move water between two reservoirs to store power when it is cheap and release it at peak hours, and they have become a central part of India's plan to balance rising solar output. The government has separately backed battery projects through viability gap funding for 92 GWh of energy storage.

Arbitration claim and the share price

Tata Power's auditor drew attention to an arbitration award of $490.32 million plus costs and interest against the company, according to the Free Press Journal. The company has challenged the award in Singapore and has made no provision for it. The auditor's review conclusion was unmodified.

The results came after the market closed. Tata Power shares had traded 1.31% higher at INR 364.70 before the results on the National Stock Exchange before ending flat at about INR 360, according to Upstox News.

Other companies reporting on Wednesday included state-owned shipbuilder Garden Reach Shipbuilders & Engineers, whose consolidated net profit rose 11.8% to INR 1.72 billion on revenue up 8.9% to INR 18.27 billion. Its shares closed 1.24% higher at INR 2,225.40.

Thursday's trading session will be the first chance for investors to price Tata Power's record profit against its weaker margin, the new INR 118.71 billion commitment and the unresolved arbitration claim.