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PTC: SEB under recoveries a dampener - Views on News from Equitymaster

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PTC: SEB under recoveries a dampener
Mar 12, 2012

PTC India has declared the results for the third quarter of financial year 2011-12 (3QFY12). The company has reported 24% YoY fall in standalone net revenues while net profit has dropped by 74% YoY. Here is our analysis of the results.

Performance summary
  • Standalone revenues fall by 10% YoY during 9mFY12, despite marginal 3.4% growth in power trading volumes.
  • Standalone operating margins improve to 1.8% in 9mFY12, from 1.5% in 9mFY11 due to lower cost of power purchased (as a percentage of sales).
  • Due to lower other income and lower treasury gains, net profits for the quarter and nine month period fell by 74% YoY and 15% YoY.
  • Non recovery of dues from state electricity boards (SEBs) continue to impact both trading revenues and profits of PTC.

Standalone numbers...
Rs (m) 3QFY11 3QFY12 Change 9mFY11 9mFY12 Change
Trading volume (MU) 5806 4564 -21.4% 19290 19945 3.4%
Net revenue 17,580 13,300 -24.3% 69,858 62,865 -10.0%
Expenditure 17,169 13,090 -23.8% 68,787 61,736 -10.3%
Operating profit 411 210 -48.9% 1,071 1,129 5.4%
EBIDTA margin (%) 2.3% 1.6%   1.5% 1.8%  
Other Income 155 43 -72.3% 472 357 -24.4%
Depreciation 13 11 -16.8% 37 33 -11.0%
Interest 8 103 1187.5% 11 196 1681.8%
Profit before tax 545 139 -74.5% 1,495 1,257 -15.9%
Tax 166 42 -74.7% 438 354 -19.2%
Effective tax rate 30.5% 30.2%   29.3% 28.2%  
Profit after tax/ (loss) 379 97 -74.4% 1,057 903 -14.6%
Net profit margin (%) 2.2% 0.7%   1.5% 1.4%  
No. of shares (m)         294.9  
Diluted earnings per share (Rs)*         4.2  
* (Trailing 12 month earnings)

What has driven performance in 9mFY12?
  • PTC’s power trading volumes grew by a marginal 3.4% YoY in 9mFY12. However, the same dropped by more than 21% YoY in 3QFY12 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 dropped by 24% YoY in 3QFY12 and by 10% YoY in 9mFY12.

  • PTC's standalone operating margins went up marginally to 1.8% during 9mFY12, from 1.5% in 9mFY11 due to lower cost of power purchased (as a percentage of sales).

  • PTC recorded substantially lower profits in the third quarter (3QFY12, on YoY basis) primarily because of increase in interest expenses on working capital and fall in treasury income on account of overdues from SEBs. However, corresponding income on account of surcharge is not accounted on accrual basis. This is a temporary mismatch as surcharge is accounted on receipt basis as PTC follows a conservative accounting policy.

  • PTC Energy Ltd, the wholly owned subsidiary of PTC, has supplied 424,061 metric tonne of coal till December, 2011.

  • During the nine month ended December 2011 the total power purchase agreements (PPAs) signed by the company were 15,370 MW (includes cross border trade). The cumulative power sale agreements (PSAs) signed stood at 5,400 MW.

What to expect?
At the current price of Rs 57, the stock is trading at a multiple of 0.6 times our estimated FY14 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. We had revised the target price for the stock after the September quarter results. Having said that, we believe that the problem of under recoveries from SEBs is temporary and will not impact PTC’s long term performance. Further its conservative accounting policies for revenue recognition are noteworthy.

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