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PTC India: Tough times continue

Aug 27, 2012

PTC India has declared the results for the first quarter of financial year 2012-13 (1QFY13). The company has reported 20% YoY fall in standalone net revenues while net profit has dropped by 44% YoY. Here is our analysis of the results.

Performance summary
  • Standalone revenues fall by 20% YoY during 1QFY13, on the back of 2.4% 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 also dip marginally to 1.6% in 1QFY13, from 1.9% in 1QFY12 due to fall in rebate income.
  • Due to lower other income and lower treasury gains, net profits for the quarter fell by 44%. This was despite negligible interest outgo and lower effective taxes. Non recovery of dues from state electricity boards (SEBs) continue to impact both trading revenues and profits of PTC.

Standalone numbers...
Rs (m) 1QFY12 1QFY13 Change
Trading volume (MU) 6,726 6,566 -2.4%
Net revenue 24,874 19,874 -20.1%
Expenditure 24,398 19,556 -19.8%
Operating profit 476 318 -33.2%
EBIDTA margin (%) 1.9% 1.6%  
Other Income 174 21 -87.9%
Depreciation 11 10 -9.1%
Interest 14 1 -92.9%
Profit before tax 625 328 -47.5%
Exceptional items - 23  
Tax 173 98 -43.4%
Effective tax rate 27.7% 29.9%  
Profit after tax/ (loss) 452 253 -44.0%
Net profit margin (%) 1.8% 1.3%  
No. of shares (m) 295  
Diluted earnings per share (Rs)*   3.4  
Price to earnings ratio (x)   17.0  
* (Trailing 12 month earnings)

What has driven performance in 1QFY13?
  • PTC's power trading volumes dropped by 2.4% YoY in 1QFY13 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 20% YoY in 1QFY13.

  • Besides poor operating performance, PTC recorded substantially lower profits in the first quarter (1QFY13, on YoY basis) because of lower rebate and treasury income. The interest expenses were negligible as the company improved its working capital management and maintained zero net debt. It may be recalled that higher net working capital requirement necessitated additional working capital loans in FY12.

  • Simhapuri Energy Pvt. Ltd. (SEPL) has entered into Power Tolling Agreement for 200 MW with PTC India for its commercial operation of imported coal based thermal power project located in Andhra Pradesh. This is the first of its kind agreement in India. The electricity generated will belong to PTC to be sold in the market.

  • 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.

  • The total power purchase agreements (PPAs) signed by the company were 15,302 MW at the end of June 2012. The cumulative power sale agreements (PSAs) signed stood at 5,595 MW.

What to expect?
At the current price of Rs 57, the stock is trading at a multiple of 0.5 times our estimated FY15 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. PTC is certainly one of the biggest victims of the problem of under recoveries from SEBs. However, given that the government must find a solution to the SEB woes sooner than later, we believe that under recoveries will be a short term blip for PTC. Further its conservative accounting policies for revenue recognition and attempts made to get rid of short term debt this quarter are noteworthy. Please take note of the target price for the stock that we had revised in September 2011 review.

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