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PTC: Searching growth

Aug 25, 2004

Performance summary:
Power trading corporation (PTC), the pioneer in power trading business in India declared lackluster results for the 1QFY05. Topline of the company grew by 2% YoY during the quarter and the bottomline stood higher by 3% for the same period. The operating margins of the company improved marginally.

(Rs m) 1QFY04 1QFY05 Change
Net sales 4,836 4,943 2.2%
Other income 17 15 -14.7%
Expenditure 4,745 4,843 2.1%
Operating profit (EBDITA) 91 100 10.3%
Operating profit margin (%) 1.9% 2.0%  
Interest 1 1 12.5%
Depreciation 4 3 -30.0%
Profit before tax 103 111 7.8%
Extraordinary items (8) 5  
Tax 44 37 -15.6%
Profit after tax/(loss) 68 70 2.7%
Net profit margin (%) 1.4% 1.4%  
No. of shares (m) 74.5 150.0  
Diluted earnings per share (Rs)* 3.6 1.9  
P/E ratio (x)   26.9  
(* annualised)      

Company background
PTC was incorporated on April 16, 1999 with the objective of carrying out the business of purchase of electricity from state power utilities, licensees, generating companies, independent power producers, captive power plants. And in the process, selling the same to the state power utilities, licensees, bulk consumers, whether in private or public sector in India and abroad. Thus the business of the company is to buy power from power plants in surplus areas and sell it to entities in power deficient states. The graph below shows the regional sales performance of the company.

What has driven performance in 1QFY05?
Sales growth disappoints: The topline of the company increased marginally due to improvement in the realisation of power sold. However, the units sold by the company during the quarter declined by more than 3% during the quarter. Just to brief the investors, FY04 remained a good year for the company as topline of the company grew by 157% on the back of higher units sold (around 11000 mu). However, during 1QFY05, the number of units sold stood at 2144, which stands at around 19% of the FY04 figures.

Operating margins: Operating margins of the company improved marginally on the back of higher spread between the buy price and the sell price (the buy-sell price spread stood at 4 paisa per unit during 1QFY04 which improved to 6 paisa during 1QFY05). That apart, other expense remained largely in line with the last years trend, i.e. they have not grown as a percentage of revenues.

Since PTC is into trading of power (buys from generation companies and sells it to SEBs), the credit given by generation company as well as credit given to SEB should be tracked closely. Lower debtor days is good for the company as it shows the prompt recovery of money. As can be seen from the graph below, the debtor days were at the same level as in FY03. But the creditor days have increased, thus providing PTC extra breathing space as far as payment is concerned. Consequently, working capital requirements stands reduced.

What to expect?
At the current price level of Rs 50, the stock trades at P/E multiple of 26.9x annualised 1QFY05 earnings, which considering the business of the company seems to be on the higher side of the valuation matrix. Internationally such companies trade in P/E limit of 6x to 10x. The power trading business is likely to grow at a faster rate, due to scarcity of power in various parts of country and addition of capacities going forward. But one must remember that the company will require more capital with the increase in the topline, as it has to maintain a reserve equivalent to 5 months sale. So equity dilution to great extent may offset the growth in EPS due to volumes.

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Dec 7, 2021 (Close)


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