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PTC: Operating margins double, but then… - Views on News from Equitymaster

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PTC: Operating margins double, but then…

May 26, 2010

PTC declared its FY10 results. The company has reported 19% YoY growth in sales while its net profits have grown by 3% YoY. Here is our analysis of the results.

Performance summary
  • Sales grow by 5% YoY during 4QFY10, 19% YoY during FY10.
  • Operating margins double to 0.8% during both the periods. Lower power purchase costs (as percentage of sales) lead to this improvement.
  • Net profit falls 11% YoY during the quarter, rises 3% YoY during the full year. Lower other income and significantly higher tax leads to this weak performance on the profit front.

Financial performance: A snapshot
(Rs m) 4QFY09 4QFY10 Change FY09 FY10 Change
Units traded (m) 2,182   3,200 46.7% 13,825 18,236 31.9%
Sales 11,796 12,435 5.4% 65,328 77,723 19.0%
Expenditure 11,753 12,340 5.0% 65,038 77,066 18.5%
Operating profit (EBDITA)        43        95 120.5%    289    658 127.2%
Operating profit margin (%) 0.4% 0.8%   0.4% 0.8%  
Other income      173      132 -23.6%    921    715 -22.4%
Depreciation         15         14 -9.9%      62       55 -11.2%
Interest           2           1 -61.8%      25          4 -85.2%
Profit before tax      199      212 6.7% 1,123   1,314 16.9%
Extraordinary income/(expense)         12           4 -69.1%       12          4 -67.3%
Tax        55        77 39.1%    226    377 66.7%
Profit after tax/(loss)      155      139 -10.6%   909     941 3.4%
Net profit margin (%) 1.3% 1.1%   1.4% 1.2%  
No. of shares            227.4       294.6  
Diluted earnings per share (Rs)                     3.2  
P/E ratio (x)                  31.0  

What has driven performance in FY10?
  • PTC saw its net sales grow by 19% YoY during FY10. This was aided by a 32% YoY growth in trading volumes. The company traded 18.2 bn units (BU) of power during the quarter as against 13.8 BU in FY09. However, given the company had sourced power during the quarter at an average rate of Rs 4.21 per unit (down 10% YoY), and it had to pass on the same to the buyers, realisations were impacted. This was the biggest reason for the lower growth in value sales as compared to the growth in volume sales. The company's average selling price for its traded power stood at Rs 4.26 per unit, which was lower by 10% YoY.

  • PTC's operating margins improved to 0.8% in FY10, from 0.4% in FY09. This was a direct result of the improvement in trading margins that stood at 5 paisa per unit in FY10, as compared to 4 paisa in FY09. PTC's power purchase costs declined from 99.1% of sales in FY09 to 98.7% in FY10, thereby aiding the margins. The management sees a further improvement in margins in the future as the company sees a higher share of long term trading (that has higher margins as compared to short term trading) in its total business.

  • Despite a strong 127% YoY growth in operating profits, PTC's net profits saw a mere 3% YoY growth during the year. This was largely owing to lower other income and higher taxes.

What to expect?
At the current price of Rs 99, the stock is trading at a multiple of 17.5 times our estimated FY12 earnings. This makes it reasonably valued. PTC's FY10 numbers have come in lower as compared to our estimates. As such, we will have to revise our numbers downwards.

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