Mumbai: CG Power and Industrial Solutions Ltd’s Q2 FY25 financial results tell a story of struggling profitability amidst growth. The net profit dropped by 8.8 per cent year-on-year to Rs 221 crore in Q2 FY25, as operational challenges weighed on earnings. The company also reported a 4.6 per cent decline in Earnings Before Interest, Tax, Depreciation, and Amortisation (EBITDA), which stood at Rs 294.7 crore for the quarter. The EBITDA margin shrank significantly, falling by 320 basis points to 12.2 per cent, down from 15.4 per cent a year earlier. The drop in profit is primarily driven by escalating operational costs, including materials and employee expenses, which surged due to inflationary pressures and a competitive business environment.
The second-quarter results, which were approved at the 21 October 2024 board meeting, reveal a significant rise in the cost of materials, reaching Rs 1,558.22 crore compared to Rs 1,258.59 crore in the same period last year. Employee benefit expenses have also jumped by 17 per cent to Rs 114.44 crore, signalling ongoing cost pressures. While revenue from the industrial and power segments showed growth, these gains were offset by mounting expenditures, with other expenses rising to Rs 246.27 crore.
“The increase in operational costs, particularly in raw materials and employee benefits, continues to put pressure on our margins. We are taking measures to optimise our cost structure,” said the management, reflecting the growing need to improve operational efficiency.
Adding to the company’s financial burden, the board approved an additional capacity expansion at its Mandideep plant, requiring an investment of Rs 26.64 crore. This move comes after a similar expansion initiative a year ago, which has yet to fully yield returns. With current utilisation at 85 per cent, the additional capacity aims to meet future transformer demand, yet it also adds to capital expenditure concerns at a time when profitability is already under strain.
The tax expenses for Q2 surged dramatically, with the company reporting a total tax bill of Rs 75.72 crore compared to Rs 80.40 crore last year. Additionally, finance costs doubled, reaching Rs 1.94 crore, exacerbating the strain on net income. The ongoing cost of expansion and the higher depreciation expense of Rs 21.29 crore are further dragging down profitability.
Shares of CG Power are down to the lowest point of the day, currently trading 5.5 per cent lower at Rs 774.05 post the earnings announcement. The stock is still up 73 per cent so far in 2024.