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PTC India: Higher volumes boost 2Q profits - Views on News from Equitymaster

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PTC India: Higher volumes boost 2Q profits

Dec 4, 2012

PTC India has declared the results for the second quarter and first half of financial year 2012-13 (1HFY13). The company has reported 17% YoY growth in standalone net revenues while net profit has grown by 26% YoY in 2QFY13. Here is our analysis of the results.

Performance summary
  • Standalone revenues fall by 2% YoY during 1HFY13, despite 4% growth in power trading volumes. Higher trading volumes (9% YoY growth) in 2QFY13 ensured 17% YoY growth in revenue.
  • Standalone operating margins also dip marginally to 1.8% in 1HFY13, from 1.9% in 1HFY12 due to fall in rebate income.
  • Despite lower other income and lower treasury gains, net profits for the quarter grew by 26% YoY due to negligible interest cost. For the half year period, profits fell by 14% YoY. Non recovery of dues from state electricity boards (SEBs) continue to impact both trading revenues and profits of PTC.

Standalone numbers...
Rs (m) 2QFY12 2QFY13 Change 1HFY12 1HFY13 Change
Trading volume (MU) 8,655 9,428 8.9% 15,381 15,994 4.0%
Net revenue 23,890 27,928 16.9% 48,765 47,797 -2.0%
Expenditure 23,447 27,358 16.7% 47,845 46,915 -1.9%
Operating profit 443 570 28.6% 920 882 -4.2%
EBIDTA margin (%) 1.9% 2.0%   1.9% 1.8%  
Other Income 140 63 -54.6% 314 89 -71.7%
Depreciation 11 10 -12.4% 22 20 -12.1%
Interest 79 4 -95.0% 93 5 -94.5%
Profit before tax 493 620 25.7% 1,119 946 -15.5%
Exceptional items - -   - (23)  
Tax 138 173 25.4% 311 272 -12.5%
Effective tax rate 28.0% 27.9%   27.8% 28.8%  
Profit after tax/ (loss) 355 447 25.8% 808 697 -13.8%
Net profit margin (%) 1.5% 1.6%   1.7% 1.5%  
No. of shares (m)         295  
Diluted earnings per share (Rs)*         3.6  
Price to earnings ratio (x)         20.9  
*On trailing 12 months earnings

What has driven performance in 2QFY13?
  • PTC's power trading volumes grew by 8.9% YoY in 2QFY13 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 grew by 17% YoY in 2QFY13.

  • Besides better operating performance, PTC recorded substantially higher profits in the second quarter (2QFY13, on YoY basis) despite 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.

  • The total power purchase agreements (PPAs) signed by the company were 14,402 MW at the end of September 2012. The cumulative power sale agreements (PSAs) signed stood at 5,595 MW.

What to expect?
At the current price of Rs 76, the stock is trading at a multiple of 0.7 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. Considering the FY15 target price for the stock we suggest investors hold on to the stock at current levels.

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