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PTC India: Surge in trading volume

Mar 4, 2013

PTC India has declared the results for the third quarter and first nine months of financial year 2012-13 (9mFY13). The company has reported 41% YoY growth in standalone net revenues while net profit has grown by 127% YoY in 3QFY13. Here is our analysis of the results.

Performance summary
  • Standalone revenues grow by 7.3% YoY during 9mFY13, on the back of 9.6% growth in power trading volumes. Higher trading volumes (28.6% YoY growth) in 3QFY13 ensured 41% YoY growth in revenue.
  • Standalone operating margins remain stable YoY at 1.8% in 9mFY13, and at 1.6% in 3QFY13.
  • Despite lower other income and lower treasury gains, net profits for the quarter grew by 127% YoY due to negligible interest cost. For the nine month period, profits grew by a marginal 1.4% YoY.
  • PTC had debtors of 27.9 bn at the end of December 2012 out of which the UP and Tamil Nadu SEBs comprised 4.8 bn and 3.8 bn respectively.

Standalone numbers...
Rs (m) 3QFY12 3QFY13 Change 9mFY12 9mFY13 Change
Trading volume (MU) 4,564 5,871 28.6% 19,933 21,851 9.6%
Net revenue 13,300 18,778 41.2% 62,065 66,581 7.3%
Expenditure 13,090 18,478 41.2% 60,935 65,394 7.3%
Operating profit 210 300 42.8% 1,130 1,188 5.1%
EBIDTA margin (%) 1.6% 1.6%   1.8% 1.8%  
Other Income 43 12 -72.1% 357 120 -66.4%
Depreciation 11 11 -0.9% 33 31 -8.4%
Interest 103 4 -96.1% 196 9 -95.4%
Profit before tax 139 297 113.7% 1,258 1,268 0.8%
Exceptional items - -   - -  
Tax 43 79 83.7% 354 351 -0.8%
Effective tax rate 30.9% 26.6%   28.1% 27.7%  
Profit after tax/ (loss) 96 218 127.1% 904 917 1.4%
Net profit margin (%) 0.7% 1.2%   1.5% 1.4%  
No. of shares (m)         295  
Diluted earnings per share (Rs)*         4.1  
Price to earnings ratio (x)         15.1  
* (Trailing 12 month earnings)

What has driven performance in 3QFY13?
  • PTC's power trading volumes grew by 28.6% YoY in 3QFY13 as PTC tried to seek payment security mechanisms from state electricity boards (SEBs) in view of the present scenario of over dues from SEBs. The revenues grew by 41% YoY in 3QFY13.

  • Besides better operating performance, PTC recorded substantially higher profits in the third quarter (3QFY13, on YoY basis) despite lower rebate and treasury income. The interest expenses were negligible as the company improved its working capital management and maintained zero net debt. It may be recalled that higher net working capital requirement necessitated additional working capital loans in FY12.

  • Simhapuri Energy Pvt. Ltd. (SEPL) has entered into Power Tolling Agreement for 200 MW with PTC India for its commercial operation of imported coal based thermal power project located in Andhra Pradesh. This is the first of its kind agreement in India. The electricity generated will belong to PTC to be sold in the market.
  • The total power purchase agreements (PPAs) signed by the company were 11,056 MW at the end of December 2012, of which 1774 MW, 6027 MW and 2535 MW respectively are due in FY14, FY15 and FY16. The cumulative power sale agreements (PSAs) signed stood at 5,595 MW.

What to expect?

At the current price of Rs 62, the stock is trading at a multiple of 0.6 times our estimated FY15 book value per share. For future estimates of PTC, we have estimated traded volumes to grow at an average annual rate of around 10% over the next three years. Also, while the management estimates its volumes to surge to 50 bn units by FY14, our estimates are at least 40% lower. PTC is certainly one of the biggest victims of the problem of under recoveries from SEBs. However, given that the government must find a solution to the SEB woes sooner than later, we believe that under recoveries will be a short term blip for PTC. The government's commitment to restructure SEBs was stated in this year's Budget speech as well. Further its conservative accounting policies for revenue recognition and attempts made to get rid of short term debt over last few quarters are noteworthy. Considering the FY15 target price for the stock we suggest investors hold on to the stock at current levels.

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