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PTC India: Uncertain outlook - Views on News from Equitymaster
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PTC India: Uncertain outlook
Jun 6, 2015

PTC India declared its results for the quarter and year ended March 2015. The company reported a revenue and profit decline of 17% YoY and 18% YoY respectively during 4QFY15. Here is our analysis of the results.

Performance summary
  • Revenues decline 17% YoY led by a similar decline in volumes during the quarter.
  • Operating profits decline by 16% YoY.
  • Profits fall by 18% YoY, in line with the dull operating performance.
  • During FY15, revenues rise by 14% YoY while profit before tax declines by 7% YoY.
  • Company declares dividend of Rs 2.2 per share. (translating to a yield of 3.5%)

Standalone numbers
Rs (m) 4QFY14 4QFY15 Change FY14 FY15 Change
Trading volume (MU) 7,656 6,331 -17.3% 35,130 37,137 5.7%
Net revenue 28,486 23,566 -17.3% 115,107 130,817 13.6%
Expenditure 27,532 22,760 -17.3% 111,978 128,107 14.4%
Operating profit 954 806 -15.5% 3,129 2,709 -13.4%
EBIDTA margin (%) 3.3% 3.4%   2.7% 2.1%  
Other Income 120 50 -57.9% 543 677 24.6%
Depreciation 11 11 2.9%  42  42 -1.0%
Interest 18 3 -82.5%  28  10 -65.1%
Profit before tax 1,045 842 -19.4% 3,603 3,335 -7.4%
Exceptional items 1  -    43 (325) -851.6%
Prior period expenses (8) (0)   (4)  3  
Tax 349 278 -20.4% 1,130 982 -13.1%
Effective tax rate 33.4% 33.0%   31.4% 29.4%  
Profit after tax/ (loss) 689 564 -18.1% 2,512 2,031 -19.2%
Net profit margin (%) 2.4% 2.4%   2.2% 1.6%  
No. of shares (m)       296 296  
Diluted earnings per share (Rs)*         8.0  
Price to earnings ratio (x)*         7.8  
* (Trailing 12 month earnings)

What has driven performance in FY15?
  • During FY15, the company's volume guidance of touching 40 bn units fell short by about 7% as it was the short term volumes that disappointed in the quarter gone by. As per the company, this segment is expected to remain volatile and flat going forward. The management blames the poor power demand as well as the transmission constraints for the reduction in short term volumes. Further, as much as 2.5 bn units were lost due to transmission constraints. However, the long term segment is expected to drive growth for the company as more capacities come on stream;

  • Short term volumes fell by as much as 28% YoY during the quarter. The segment contributed to about 60% of total volumes in the quarter gone by (72% last year). Long term volumes formed about a third of total volumes and grew by 21% YoY during the quarter. The company expects long term volumes to contribute to nearly half the volumes 2 to 3 years down the line. This would be a positive for the company considering that this is a relatively higher margin business segment.

  • Given that the company earned net surcharge to the tune of Rs 1.4 bn in the previous year (Rs 574 in current year), it would be required to adjust the same to get a better look at the operating performance. On doing so, revenues during the year were up by 15% YoY while operating profits were higher by about 22% YoY.
What to expect?

At the current price of Rs 62.25, the stock is trading at a multiple of 0.7x its FY15 book value per share.

Going forward, the company will be focusing on its long term business, which it hopes to contribute to about 40% of overall volumes in the coming year and about half of the volumes a few years down the line. To achieve this, it plans to sign power purchase agreements (PPAs) to the tune of 1.6 GW, 2.6 GW and 2.3 GW in the next three years respectively. What has however been a major setback for the company has been that of the Power Ministry banning power traders from case I power procurement bids; considering that the company has tied up for PPAs worth 11GW, it does expose the company to the risk of not tying up sales contracts of about 2.8 GW due to the same.

Plus, a major concern that we have is the low overall return ratios. With the company pouring money into related but capex heavy businesses (through investments), it has spoilt the overall return profile of the business. What is more is that monetization of the same is expected a two to three years from now.

In the near term, the trend in volumes in the short term segment will impact business growth. However, in the longer term the company's ability to improve margins and return ratios will be the key anchor for valuations.

While we had closed our position on the stock on the back of the recommendation period coming to an end, we had advised investors to hold on to the stock from a long term perspective. The stock of PTC India has been hammered in recent times, falling by over a third in the year till date. What does however provide some support is the value per share of its listed subsidiary PTC India Financial Services, which forms about three fourth of the current price of PTC India's share. But this is the case at current valuations, which are at their lower in recent times, but well above the long term average.

We would like to remind you that within the overall exposure to equities, you must ensure that you broadly follow our suggested asset allocation and that no single stock comprises more than 5% of your portfolio.

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