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Index

Stock Update >> PTC India

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2Sharekhan Home NextNovember 18, 2013

303540455055606570758085

Nov

-12

Feb

-13

May

-13

Aug

-13

Nov

-13

FII16%

DII46%

Others22%

Promoters16%

investors eye stock update

Company details

Price chart

Shareholding pattern

Price performance

(%) 1m 3m 6m 12m

Absolute 4.9 26.6 -2.6 -13.5

Relative 6.5 20.3 -6.2 -21.3

to Sensex

PTC India Reco: Buy

Stock Update

Positive triggers unfolding; Buy with revised price target of Rs70 CMP: Rs58

Price target: Rs70

Market cap: Rs1,727 cr

52 week high/low: Rs81/35

NSE volume: 8.9 lakh(no. of shares)

BSE code: 532524

NSE code: PTC

Sharekhan code: PTC

Free float: 24.8 cr(no. of shares)

Result highlights

Q2 results much ahead of expectations on better margin and hefty dividend

income: PTC India (PTC) reported a stellar set of numbers for Q2FY2014

recording a net profit growth of 39% year on year (YoY) and 109% quarter on

quarter (QoQ) which is much ahead of our as well as the Streets expectations.

A year-on-year (Y-o-Y) comparison is not fair as the company has shifted part of

its business from the tolling model to the long-term model since Q1FY2014.

Though the net sales of Rs3,140 crore were in line with our estimate, the

operating profit of Rs68 crore was significantly above our estimate of Rs44

crore due to a better trading margin earned (7 paise per unit against our estimate

of 6 paise per unit) and lower than estimated other expenses (around Rs9 crore

lower). Below the operating level, it reported other income of Rs19 crore,

which is better than our estimate, as the company received dividend to the

tune of Rs13.5 crore from PTC Financial Services (PTC Financial; a subsidiary)

in this quarter. Consequently, the profit after tax (PAT) was Rs62 crore against

our estimate of Rs35 crore.

Robust H1FY2014 performance; revised upward annual estimates: In

H1FY2014, the net sales grew by 24% YoY to Rs5,911 crore, backed by a 20%

volume growth. The benefit percolated to the operating level and the operating

Results Rs cr

Particulars Q2 Q2 YoY Q1 QoQ H1 H1 YoYFY14 FY13 % FY14 % FY14 FY13 %

Units traded in mn units 10,820 9,428 15 8,418 29 19,238 15,989 20

Blended realisation in Rs /unit 2.9 3.0 -2 3.3 -12 3.1 3.0 3

Total income 3,140 2,793 12 2,770 13 5,911 4,780 24

Purchase 3,064 2,593 18 2,704 13 5,768 4,478 29

Trading profit 77 200 -62 66 16 143 302 -53

Total expenditure 3,072 2,736 12 2,736 12 5,809 4,692 24

Operating profit 68 57 19 34 99 102 89 15

Other income 18.9 6.2 205 8.1 133 27.0 8.3 226

Interest 0.3 0.4 -17 0.4 -7 0.7 0.5 34

Depreciation 1.1 1.0 9 1.1 4 2.1 2.0 8

PBT 85 62 38 41 110 126 95 33

Tax 24 17 36 11 106 35 27 29

Adjusted PAT 62 45 39 29 111 91 68 35

Extraordinary items 0 (0) NA 0 NA 0 (0) -386

Prior period adjustments - 0 NA 0 NA 0 2 -86

Reported profit after EO item 62 45 39 30 109 92 70 31

Ratios (%) bps bps bps

Operating margin 2.2 2.0 11.7 1.2 93.2 1.7 1.9 (13.4)

PAT margin 2.0 1.6 37.3 1.1 91.1 1.5 1.4 13.1

Tax rate 27.5 27.9 (40.8) 28.0 (45.0) 27.7 28.7 (98.4)



SOTP valuation

Company Stake (%) Multiple Value (Rs crore) Value Rs/share

Core power trading business 100 12x FY2015 core earnings 1652 56

PTC Financial Services 60 0.5xBV (YTD) 422 14

SOTP 70

profit grew by 15% YoY to Rs102 crore in H1FY2014.

Further, supported by a significant jump in the other

income (the dividend income received from the

subsidiary) the adjusted PAT grew by 35% YoY to Rs91

crore in H1FY2014. In view of the performance in the

first half, we have fine-tuned our sales estimates for

FY2014 and FY2015 but revised upward our net profit

estimates for FY2014 and FY2015 by 17% and 6%

respectively to factor in the lower other expenses and

higher other income. The receipt of significant

receivables from the Uttar Pradesh State Electricity

Board (UPSEB) would result in a significant jump in

the other income. Our revised PAT estimates for FY2014

and FY2015 stand at Rs151 crore and Rs166 crore

respectively.

Viewpositive triggers unfolding; maintain Buy:

After the restructuring of the state electricity boards

(SEBs) large funds stuck with the SEBs are coming back,

the trading volume is looking up and the long-term

volume (better margin) is likely to move up too.

Moreover, the management seems to be more confident

of achieving a profitable growth now and aims to

improve the returns ratio from the current level in

the next two years. Stringent risk management and a

better balance sheet should be positive for the

company. Hence, we remain positive on the stock and

retain our Buy rating on it. Based on the upward

revision in our net profit estimates, we have raised

our sum-of-the-parts (SOTP)-based price target to Rs70

per share from Rs65 earlier.

Decent top line growth with uptick in volume

For Q2FY2014 PTC reported a top line of Rs3,140 crore,

which is a 12-13% growth on both Y-o-Y and quarter-on-

quarter (Q-o-Q) bases, and is also in line with our estimate.

The healthy growth in the top line was mainly led by a

jump in the volume, which grew by 15% YoY and 29% QoQ

to 10.8BU in Q2FY2014. However, the blended realisation

per unit stood at Rs2.9 per unit, which is a decline of 2%

YoY and 12% QoQ. The blended realisation declined

sequentially due to the seasonality effect. During the

monsoon, usually hydel power volume improves (please

note that a significant portion of the hydel power produced

by PTC is being traded by the company). Hence, a jump

in the hydel power volume would have adversely affected

the trading realisation per unit. However, the blended

realisation was in line with our estimate.

Volume traded in MU and Y-o-Y growth

-

0.1

0.1

0.2

0.2

0.3

0.3

0.4

Q1F

Y12

Q2F

Y12

Q3F

Y12

Q4F

Y12

Q1F

Y13

Q2F

Y13

Q3F

Y13

Q4F

Y13

Q1F

Y14

Q2F

Y14

Gross trading margin Rs per unit

Gross trading margin (Rs/unit)

Operating profit benefited on lower other expenses,

leading to healthy margin expansion

On a Y-o-Y basis, due to a change in the business mix (the

tolling business converted into a long-term business) the

operating expenses were not accounted for in Q2FY2014

as had been accounted to the tolling operations last year.

Hence, on a Y-o-Y basis the operating profit figures are

not comparable. Nevertheless, the operating profit grew

by 19% YoY in Q2FY2014. On a sequential basis, the margin

improved largely on account of lower other expenses and

a better volume. Consequently, the operating profit more

than doubled QoQ to Rs68 crore. The operating profit per

unit stood at 6 paise as normal trading volume earns

around 4 paise per unit and the long-term volume would

have earned around 30 paise per unit in Q2FY2014.

6,72

0

8,65

5

4,56

4

4,37

9

6,56

6

9,42

8

5,87

1

6,73

2

8,41

8

10,8

20

3,000

5,000

7,000

9,000

11,000

13,000

Q1F

Y12

Q2F

Y12

Q3F

Y12

Q4F

Y12

Q1F

Y13

Q2F

Y13

Q3F

Y13

Q4F

Y13

Q1F

Y14

Q2F

Y14

-30%

-20%

-10%0%

10%

20%

30%40%

50%

60%

Total Volumes Traded (MU) Yoy Change


Higher other income dazzled bottom line growth

During Q2FY2014, the net profit grew by 39% YoY and 109%

QoQ to Rs62 crore, backed by a significant jump in the

other income due to a dividend income of Rs13.5 crore

received from its subsidiary, PTC Financial. Nevertheless,

the strong operational performance also supported the

healthy growth in the bottom line and the net profit was

much ahead of our expectation.

Robust H1FY2014 performance, other income jumped

In H1FY2014, the net sales grew by 24% YoY to Rs5,911

crore, backed by a 20% growth in the volume, which stood

at 19.2BU. In the meantime, the blended realisation grew

by 3% YoY to Rs3.07 per unit. The operating profit grew

by 15% YoY to Rs102 crore and the OPM stood at 1.7% at

the end of H1FY2014. Below the operating line, the PAT

showed a strong growth of 35% YoY to Rs91 crore, mainly

due to a significant jump in the other income (due to a

dividend income received from the subsidiary) during the

first half of this fiscal.

Key conference call highlights

Received large pending receivables from UPSEB;

significant easing of balance sheet

During Q2FY2014, PTC received the payment for long

pending receivables worth Rs778 crore (gross amount)

from the UPSEB. Adjusting payable, net realisation was

at Rs615 crore. Further, during the post-result conference

call, the management indicated that the surcharge from

the UPSEB could be to the tune of Rs70 crore. However,

the surcharge amount is under negotiation currently.

Though the pending receivables from the Tamil Nadu SEB

has remained unchanged at Rs250 crore since the last

two quarters due to some commercial dispute, but the

management expects to settle the same by the end of

FY2014. The release of the pending receivable from these

two SEBs will be highly positive for the company as it will

significantly ease the pressure on its balance sheet and

help it to improve its returns ratio to some extent

in future.

Enhanced risk management system to prevent such

events in future

After learning from bad experience in the past with long

pending sizeable receivables, the company has enhanced its

focus on its risk management system. The appointment of a

chief risk officer, adoption of a stringent receivable policy

and its close monitoring are indication of the same. We believe

this would help the company to avoid such issues in future.

Cross-border and retail volumes are next growth triggers

PTC has entered into long-term cross-border arrangement

with Bangladesh for supply of 250MW electricity and the

supply should start from December 1, 2013. Moreover, the

management of PTC sees high growth prospects in providing

power to consumers of load greater than one megawatt

(in the retail business), the open access customers.

Currently, PTC has more than 250 open access customers

across the country and expects the number to move up in

the coming days. During Q2FY2014, around 500MU were

contributed by the retail customers. The management

believes that this segment is in incubating phase and is

likely to witness growth. Hence, it aims to increase its

presence by taking the early mover advantage. Moreover,

this segment is expected to have a relatively better margin.

Even in case of the cross-border business with Bangladesh,

PTC is expected to earn a better margin in the range of 7-

8 paise per unit against 4 paisa per unit in the normal

domestic wholesale trading business.

Volumes from Meenakshi and Simhapuri plants could

go up in future

During Q2FY2014, the volume from both the Meenakashi

and the Simhapuri plant clubbed together stood at around

370MU, which indicates a low plant load factor. However,

the management shared that there was a scheduled plant

shutdown for 15 days in Simhapuri while the Meenakshi

plant got commissioned on May 30, 2013 only and hence

has yet to stabilise. We believe that after the stabilisation

of the Meenakshi plant, the volume may go up from the

facility, which usually earns significantly higher margin

compared with the core trading business.

1.0%

1.3%

1.5%

1.8%

2.0%

2.3%

2.5%Q

1FY

12

Q2F

Y12

Q3F

Y12

Q4F

Y12

Q1F

Y13

Q2F

Y13

Q3F

Y13

Q4F

Y13

Q1F

Y14

Q2F

Y14

Operating margin (%)

Operating profit margin (%)



Viewpositive triggers unfolding; maintain Buy

After the restructuring of the state electricity boards

(SEBs) large funds stuck with the SEBs are coming back,

the trading volume is looking up and the long-term volume

(better margin) is likely to move up too. Moreover, the

management seems to be more confident of achieving a

profitable growth now and aims to improve the returns

ratio from the current level in the next two years.

Stringent risk management and a better balance sheet

should be positive for the company. Hence, we remain

positive on the stock and retain our Buy rating on it. Based

on the upward revision in our net profit estimates, we

have raised our sum-of-the-parts (SOTP)-based price

target to Rs70 per share from Rs65 earlier.

Valuations

Particulars FY12 FY13 FY14E FY15E

Net sales (Rs cr) 7,650 8,856 10,677 12,096

Operating Profit (Rs cr) 145 169 181 198

Net profit (Rs cr) 120 127 151 166

EPS (Rs) 4.1 4.3 5.1 5.6

YoY growth % -13.2 5.7 18.9 9.9

PER (x) 14.4 13.6 11.4 10.4

P/BV (x) 0.8 0.7 0.7 0.7

EV/EBIDTA (x) 8.6 7.6 4.3 4.1

RoCE (%) 8.5 7.6 8.7 9.2

RoE (%) 5.3 5.5 6.3 6.6

Dividend yield (%) 2.6 2.7 3.1 3.4


Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.


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