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  • Jun 26, 2012 - PTC: Interest costs, under recoveries erode profits

PTC: Interest costs, under recoveries erode profits
Jun 26, 2012

PTC India has declared the results for the fourth quarter of financial year 2011-12 (4QFY12). The company has reported 15% YoY fall in standalone net revenues while net profit has dropped by 9% YoY. Here is our analysis of the results.

Performance summary
  • Standalone revenues fall by 15% YoY during FY12, on the back of marginal 0.6% fall in power trading volumes. This was largely because of the frail health of state electricity boards (SEBs) and delayed payments from them.
  • Standalone operating margins improve to 1.9% in FY12, from 1.6% in FY11 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 fiscal fell by 9% YoY and 13% YoY respectively.
  • Non recovery of dues from state electricity boards (SEBs) continue to impact both trading revenues and profits of PTC.

Standalone numbers...
Rs (m) 4QFY11 4QFY12 Change FY11 FY12 Change
Trading volume (MU) 5,191 4,380 -15.6% 24,481 24,325 -0.6%
Net revenue 20,127 14,436 -28.3% 89,972 76,502 -15.0%
Expenditure 19,785 14,114 -28.7% 88,573 75,049 -15.3%
Operating profit 342 322 -5.8% 1,399 1,453 3.8%
EBIDTA margin (%) 1.7% 2.2%   1.6% 1.9%  
Other Income 143 149 4.2% 628 506 -19.4%
Depreciation 13 11 -13.2% 50 45 -11.3%
Interest 1 63   11 260  
Profit before tax 471 397 -15.8% 1,966 1,654 -15.9%
Tax 143 97 -32.3% 580 452 -22.1%
Effective tax rate 30.4% 24.4%   29.5% 27.3%  
Profit after tax/ (loss) 328 300 -8.6% 1,386 1,203 -13.2%
Net profit margin (%) 1.6% 2.1%   1.5% 1.6%  
No. of shares (m)         294.9  
Diluted earnings per share (Rs)*         4.2  
Price to earnings ratio (x)         13.7  
* (Trailing 12 month earnings)

What has driven performance in FY12?
  • PTC’s power trading volumes dropped by 16% YoY in 4QFY12. However, the same dropped by a marginal 0.6% YoY in FY12 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 28% YoY in 4QFY12 and by 15% YoY in FY12.

  • PTC recorded substantially lower profits in the fourth quarter (4QFY12, on YoY basis) primarily because interest expenses shot up due to working capital loan of Rs 4 bn (nil in FY11), as debtors increased substantially. Debtor days were at 96 as against 40 as at March 2011. Earlier, PTC used to manage working capital requirement out of the cash and liquid investments on its books, as net working capital requirement was always lower. Higher net working capital requirement necessitating additional working capital loans in FY12. 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 is due to receive Rs 1.6 bn as surcharge from Tamil Nadu and UP SEBs against delayed payments. The company has decided on a conservative basis to book the surcharge income on actual receipt basis, as and when the payment is received from the SEBs. During 4QFY12, the company received surcharge income, mainly from Bihar and Jharkhand SEBs.

  • PTC Energy Ltd, the wholly owned subsidiary of PTC, traded 0.42mt of coal in FY12 and booked Rs1.6 bn in revenues, while reporting Rs 28.8 m in net profits. The company is targeting volumes of 2.2 mt of coal in FY13.

  • The total power purchase agreements (PPAs) signed by the company were 14,548 MW at the end of March 2012. The cumulative power sale agreements (PSAs) signed stood at 5,400 MW.

  • PTC’s cash balance reduced to Rs 458 m in 4QFY12 (Rs 3.2 bn in 3QFY12) after repayment of debt in the fourth quarter.

What to expect?
At the current price of Rs 60, 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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