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PTC India: Surcharge income boosts profits - Views on News from Equitymaster

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PTC India: Surcharge income boosts profits
Jan 20, 2014

PTC India declared its results for the quarter and nine month period ended December 2013. The company's revenues and profits were up by 47% YoY and 315% YoY respectively during 3QFY14. Here is our analysis of the results.

Performance summary
  • Revenues rise by 47% YoY during the quarter led by a 40% YoY rise in traded volumes.
  • Operating profits jump by 286% YoY in 3QFY14 on the back of a Rs 730 m gain on net surcharge income. Excluding the same, operating profits rise by 43% YoY during the quarter.
  • Higher other income combined with a strong operating performance lead to a sharp rise in profits during the quarter.
  • During 9mFY14, revenues and profits increase by 30% YoY and 99% YoY respectively.

Standalone numbers
Rs (m) 3QFY13 3QFY14 Change 9mFY13 9mFY14 Change
Trading volume (MU) 5,871 8,236 40.3% 21,864 27,474 25.7%
Net revenue 18,778 27,515 46.5% 66,581 86,621 30.1%
Expenditure 18,478 26,359 42.7% 65,393 84,446 29.1%
Operating profit 300 1,156 285.6% 1,188 2,175 83.1%
EBIDTA margin (%) 1.6% 4.2%   1.8% 2.5%  
Other Income 12 154 1148.8% 95 424 345.6%
Depreciation 11 10 -6.5% 31 32 2.9%
Interest 4 2 -39.5% 9 9 3.4%
Profit before tax 297 1,297 336.1% 1,244 2,558 105.7%
Exceptional items 1 42 8320.0% 1 42 8320.0%
Prior period expenses 0 -   23 3 -86.3%
Tax 79 432 444.3% 351 781 122.7%
Effective tax rate 26.7% 33.3%   28.2% 30.5%  
Profit after tax/ (loss) 219 908 314.9% 917 1,823 98.8%
Net profit margin (%) 1.2% 3.3%   1.4% 2.1%  
No. of shares (m)       295 296  
Diluted earnings per share (Rs)*         7.4  
Price to earnings ratio (x)*         8.1  
*Trailing 12 month earnings; Exception items largely consist of a write back of excess provision

What has driven performance in 3QFY14?
  • PTC's trading volumes increased by about 40.3% YoY during the quarter ended December 2013. Total operating revenues increased by 47% YoY. This includes an amount of Rs 1,382 m on surcharge from debtors on overdue amount on sale of power. PTC's operating profits surged by 286% YoY as margins expanded to 4.2% from 1.6%. The operating expenses also include surcharge expenses payable to creditors to the sum of Rs 652.8 m, thereby providing the company a boost (the difference between the two surcharges) of about Rs 730 m during the quarter. On excluding the same, however, the operating profits grow in line with the revenues growth.

  • Volume growth during the quarter was led by short term segment which increased by about 59% YoY. Long term and cross border volumes were up by about 56% YoY and 48% YoY respectively.

  • During 9mFY14, volumes, revenues and profits increased by 26% YoY, 30% YoY and 99% YoY respectively (unadjusted figure).

What to expect?
At the current price of Rs 60, the stock is trading at a multiple of about 0.74 times its FY13 book value per share and 8.1 times its trailing twelve month earnings per share.

The receivables at the end of the quarter stood at Rs 23.7 bn, while creditors stood at Rs 15.6 bn. This former includes a pending payment of Rs 2.6 bn from Tamil Nadu. PTC expects the same to come in by the end of the current fiscal. Compared to last year's debtors' figure of Rs 21.4 bn, it is definitely an improvement, considering the sharp increase in revenues. But, it still higher as compared to the long term average debtor days. This is the key concern for PTC, especially considering the financial health of the discoms.

While the stock is currently trading at attractive valuations, the fact that the company earns low returns on its overall investments is a concern to us. PTC paid out an average dividend per share of Rs 1.53 in the past three years. At current price, the dividend yield on the same comes to about 2.6%. The current market capitalisation is at levels of Rs 17.8 bn; we believe the downside is capped. This we say because as the cash balance (as of December 2013) stands at about Rs 7.8 bn and the investment on books at Rs 6.9 bn (as of FY13; after providing 25% discount). The total of these two add up to Rs 14.7 bn, which is nearly 83% of the current market capitalisation.

While the company's trading business is not one that requires a lot of capital, the future of the company will largely depend on how the management's capital allocation skills. It has stated that with the contribution of long term power contracts increasing, capital requirements will rise substantially as receiving payments takes longer than short term contracts. But this is something that would happen over a period of two to three years.

We maintain our hold view on the stock from a long term perspective. Subscribers are recommended not to have an exposure of more than 5% to an individual stock for the purpose of risk mitigation.



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