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PTC India: Volumes surge, margins contract - Views on News from Equitymaster
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PTC India: Volumes surge, margins contract
Aug 7, 2013

PTC India declared its results for the quarter ended June 2013. The company's standalone revenues and profits were up by 39% YoY and 18% YoY respectively during 1QFY14. Here is our analysis of the results.

Performance summary
  • Revenues increase by 39% YoY during the quarter led by a 28% YoY rise in traded volumes.
  • Operating margins contract by 0.4% YoY to 1.2% leading to a slower 7% YoY increase in operating profits during the quarter.
  • Higher other income helped the company post a faster profit before tax growth of 25% YoY. Profits grow by 18% YoY due to prior period adjustment. On excluding the same, profits are higher by 28% YoY.

Standalone numbers
Rs(m) 1QFY13 1QFY14 Change
Tradingvolume (MU) 6,566 8,418 28.2%
Net revenue 19,874 27,705 39.4%
Expenditure 19,557 27,364 39.9%
Operating profit 317 340 7.2%
EBIDTA margin (%) 1.6% 1.2%  
Other Income 21 81 288.9%
Depreciation 10 11 7.4%
Interest 1 4 212.3%
Profit before tax 327 407 24.5%
Exceptional items 0 0 -47.4%
Prior period expenses 23 3 -86.1%
Tax 98 114 16.0%
Effective tax rate 30.0% 28.0%  
Profit after tax/ (loss) 252 297 17.5%
Net profit margin (%) 1.3% 1.1%  
No. of shares (m) 295 296  
Diluted earnings pershare (Rs)*   4.5  
Price to earnings ratio(x)*   8.8  
*trailing twelve months

What has driven performance in 1QFY14?
  • PTC's power trading volumes increased by about 28% YoY in 1QFY14. This led to a revenue growth of 39.3% YoY. At the operating level, the company's margins contracted by about 0.4% to 1.2% thereby leading to an operating profit growth of only 7% YoY. Of the total volumes traded, short terms volumes contribute to nearly 65% of volumes (same as last year). Cross border volumes contributed to about 18% of volumes as compared to about 14% in the previous year. The same was largely due to early and robust monsoons (hydropower). It may be noted that as compared to the preceding quarter, the margins seem much lower on account of no tolling volumes (as reported by company). Further, the company has converted the tolling business volumes into power purchase agreements on 2% margins.

  • PTC's net profits increased by 18% YoY. The key reason for the same was higher other income. The profits growth would have been higher had it not been for the prior period adjustments (in both quarters). Adjusting for the same, the profits would have been higher by 28% YoY.

What to expect?

At the current price of Rs 40, the stock is trading at a multiple of 0.5 times its FY13 book value per share.

As mentioned earlier, a key concern for PTC has been related to collections from state electricity boards - especially UP and Tamil Nadu discoms. Total outstanding receivables stand at Rs 27.7 bn. Rs 5.3 bn is the due from UP and Rs 2.6 bn from Tamil Nadu. The company did however receive some payments from these SEBs during the quarter gone by. As per the company's management it is hopeful of receiving significant portions of the receivables by the end of this year. The company's wafer thin operating and net margins and very low return ratio are the key reasons for the huge discount in its valuations.

PTC India is currently trading at a market capitalisation of Rs 11.8 bn. It is a debt free company. The cash on books stands at about Rs 3.5 bn (29% of market capitalisation). Total non-current investments as of FY13 stood at Rs 9.13 bn. Post a 25% discount, the investments are valued at Rs 6.8 bn. These two values combined form about 87% of the current market cap. As such, the downside does seem protected to a great extent. Also what would be an added bonus would be the dividend yield of about 4%.

We maintain our hold view on the stock from a long term perspective.

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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