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Visit us at www.sharekhan.com November 18, 2013
Index
Stock Update >> PTC India
For Private Circulation only
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303540455055606570758085
Nov
-12
Feb
-13
May
-13
Aug
-13
Nov
-13
FII16%
DII46%
Others22%
Promoters16%
investors eye stock update
Company details
Price chart
Shareholding pattern
Price performance
(%) 1m 3m 6m 12m
Absolute 4.9 26.6 -2.6 -13.5
Relative 6.5 20.3 -6.2 -21.3
to Sensex
PTC India Reco: Buy
Stock Update
Positive triggers unfolding; Buy with revised price target of Rs70 CMP: Rs58
Price target: Rs70
Market cap: Rs1,727 cr
52 week high/low: Rs81/35
NSE volume: 8.9 lakh(no. of shares)
BSE code: 532524
NSE code: PTC
Sharekhan code: PTC
Free float: 24.8 cr(no. of shares)
Result highlights
Q2 results much ahead of expectations on better margin and hefty dividend
income: PTC India (PTC) reported a stellar set of numbers for Q2FY2014
recording a net profit growth of 39% year on year (YoY) and 109% quarter on
quarter (QoQ) which is much ahead of our as well as the Streets expectations.
A year-on-year (Y-o-Y) comparison is not fair as the company has shifted part of
its business from the tolling model to the long-term model since Q1FY2014.
Though the net sales of Rs3,140 crore were in line with our estimate, the
operating profit of Rs68 crore was significantly above our estimate of Rs44
crore due to a better trading margin earned (7 paise per unit against our estimate
of 6 paise per unit) and lower than estimated other expenses (around Rs9 crore
lower). Below the operating level, it reported other income of Rs19 crore,
which is better than our estimate, as the company received dividend to the
tune of Rs13.5 crore from PTC Financial Services (PTC Financial; a subsidiary)
in this quarter. Consequently, the profit after tax (PAT) was Rs62 crore against
our estimate of Rs35 crore.
Robust H1FY2014 performance; revised upward annual estimates: In
H1FY2014, the net sales grew by 24% YoY to Rs5,911 crore, backed by a 20%
volume growth. The benefit percolated to the operating level and the operating
Results Rs cr
Particulars Q2 Q2 YoY Q1 QoQ H1 H1 YoYFY14 FY13 % FY14 % FY14 FY13 %
Units traded in mn units 10,820 9,428 15 8,418 29 19,238 15,989 20
Blended realisation in Rs /unit 2.9 3.0 -2 3.3 -12 3.1 3.0 3
Total income 3,140 2,793 12 2,770 13 5,911 4,780 24
Purchase 3,064 2,593 18 2,704 13 5,768 4,478 29
Trading profit 77 200 -62 66 16 143 302 -53
Total expenditure 3,072 2,736 12 2,736 12 5,809 4,692 24
Operating profit 68 57 19 34 99 102 89 15
Other income 18.9 6.2 205 8.1 133 27.0 8.3 226
Interest 0.3 0.4 -17 0.4 -7 0.7 0.5 34
Depreciation 1.1 1.0 9 1.1 4 2.1 2.0 8
PBT 85 62 38 41 110 126 95 33
Tax 24 17 36 11 106 35 27 29
Adjusted PAT 62 45 39 29 111 91 68 35
Extraordinary items 0 (0) NA 0 NA 0 (0) -386
Prior period adjustments - 0 NA 0 NA 0 2 -86
Reported profit after EO item 62 45 39 30 109 92 70 31
Ratios (%) bps bps bps
Operating margin 2.2 2.0 11.7 1.2 93.2 1.7 1.9 (13.4)
PAT margin 2.0 1.6 37.3 1.1 91.1 1.5 1.4 13.1
Tax rate 27.5 27.9 (40.8) 28.0 (45.0) 27.7 28.7 (98.4)
3Sharekhan Home NextNovember 18, 2013
investors eye stock update
SOTP valuation
Company Stake (%) Multiple Value (Rs crore) Value Rs/share
Core power trading business 100 12x FY2015 core earnings 1652 56
PTC Financial Services 60 0.5xBV (YTD) 422 14
SOTP 70
profit grew by 15% YoY to Rs102 crore in H1FY2014.
Further, supported by a significant jump in the other
income (the dividend income received from the
subsidiary) the adjusted PAT grew by 35% YoY to Rs91
crore in H1FY2014. In view of the performance in the
first half, we have fine-tuned our sales estimates for
FY2014 and FY2015 but revised upward our net profit
estimates for FY2014 and FY2015 by 17% and 6%
respectively to factor in the lower other expenses and
higher other income. The receipt of significant
receivables from the Uttar Pradesh State Electricity
Board (UPSEB) would result in a significant jump in
the other income. Our revised PAT estimates for FY2014
and FY2015 stand at Rs151 crore and Rs166 crore
respectively.
Viewpositive triggers unfolding; maintain Buy:
After the restructuring of the state electricity boards
(SEBs) large funds stuck with the SEBs are coming back,
the trading volume is looking up and the long-term
volume (better margin) is likely to move up too.
Moreover, the management seems to be more confident
of achieving a profitable growth now and aims to
improve the returns ratio from the current level in
the next two years. Stringent risk management and a
better balance sheet should be positive for the
company. Hence, we remain positive on the stock and
retain our Buy rating on it. Based on the upward
revision in our net profit estimates, we have raised
our sum-of-the-parts (SOTP)-based price target to Rs70
per share from Rs65 earlier.
Decent top line growth with uptick in volume
For Q2FY2014 PTC reported a top line of Rs3,140 crore,
which is a 12-13% growth on both Y-o-Y and quarter-on-
quarter (Q-o-Q) bases, and is also in line with our estimate.
The healthy growth in the top line was mainly led by a
jump in the volume, which grew by 15% YoY and 29% QoQ
to 10.8BU in Q2FY2014. However, the blended realisation
per unit stood at Rs2.9 per unit, which is a decline of 2%
YoY and 12% QoQ. The blended realisation declined
sequentially due to the seasonality effect. During the
monsoon, usually hydel power volume improves (please
note that a significant portion of the hydel power produced
by PTC is being traded by the company). Hence, a jump
in the hydel power volume would have adversely affected
the trading realisation per unit. However, the blended
realisation was in line with our estimate.
Volume traded in MU and Y-o-Y growth
-
0.1
0.1
0.2
0.2
0.3
0.3
0.4
Q1F
Y12
Q2F
Y12
Q3F
Y12
Q4F
Y12
Q1F
Y13
Q2F
Y13
Q3F
Y13
Q4F
Y13
Q1F
Y14
Q2F
Y14
Gross trading margin Rs per unit
Gross trading margin (Rs/unit)
Operating profit benefited on lower other expenses,
leading to healthy margin expansion
On a Y-o-Y basis, due to a change in the business mix (the
tolling business converted into a long-term business) the
operating expenses were not accounted for in Q2FY2014
as had been accounted to the tolling operations last year.
Hence, on a Y-o-Y basis the operating profit figures are
not comparable. Nevertheless, the operating profit grew
by 19% YoY in Q2FY2014. On a sequential basis, the margin
improved largely on account of lower other expenses and
a better volume. Consequently, the operating profit more
than doubled QoQ to Rs68 crore. The operating profit per
unit stood at 6 paise as normal trading volume earns
around 4 paise per unit and the long-term volume would
have earned around 30 paise per unit in Q2FY2014.
6,72
0
8,65
5
4,56
4
4,37
9
6,56
6
9,42
8
5,87
1
6,73
2
8,41
8
10,8
20
3,000
5,000
7,000
9,000
11,000
13,000
Q1F
Y12
Q2F
Y12
Q3F
Y12
Q4F
Y12
Q1F
Y13
Q2F
Y13
Q3F
Y13
Q4F
Y13
Q1F
Y14
Q2F
Y14
-30%
-20%
-10%0%
10%
20%
30%40%
50%
60%
Total Volumes Traded (MU) Yoy Change
4Sharekhan Home NextNovember 18, 2013
Higher other income dazzled bottom line growth
During Q2FY2014, the net profit grew by 39% YoY and 109%
QoQ to Rs62 crore, backed by a significant jump in the
other income due to a dividend income of Rs13.5 crore
received from its subsidiary, PTC Financial. Nevertheless,
the strong operational performance also supported the
healthy growth in the bottom line and the net profit was
much ahead of our expectation.
Robust H1FY2014 performance, other income jumped
In H1FY2014, the net sales grew by 24% YoY to Rs5,911
crore, backed by a 20% growth in the volume, which stood
at 19.2BU. In the meantime, the blended realisation grew
by 3% YoY to Rs3.07 per unit. The operating profit grew
by 15% YoY to Rs102 crore and the OPM stood at 1.7% at
the end of H1FY2014. Below the operating line, the PAT
showed a strong growth of 35% YoY to Rs91 crore, mainly
due to a significant jump in the other income (due to a
dividend income received from the subsidiary) during the
first half of this fiscal.
Key conference call highlights
Received large pending receivables from UPSEB;
significant easing of balance sheet
During Q2FY2014, PTC received the payment for long
pending receivables worth Rs778 crore (gross amount)
from the UPSEB. Adjusting payable, net realisation was
at Rs615 crore. Further, during the post-result conference
call, the management indicated that the surcharge from
the UPSEB could be to the tune of Rs70 crore. However,
the surcharge amount is under negotiation currently.
Though the pending receivables from the Tamil Nadu SEB
has remained unchanged at Rs250 crore since the last
two quarters due to some commercial dispute, but the
management expects to settle the same by the end of
FY2014. The release of the pending receivable from these
two SEBs will be highly positive for the company as it will
significantly ease the pressure on its balance sheet and
help it to improve its returns ratio to some extent
in future.
Enhanced risk management system to prevent such
events in future
After learning from bad experience in the past with long
pending sizeable receivables, the company has enhanced its
focus on its risk management system. The appointment of a
chief risk officer, adoption of a stringent receivable policy
and its close monitoring are indication of the same. We believe
this would help the company to avoid such issues in future.
Cross-border and retail volumes are next growth triggers
PTC has entered into long-term cross-border arrangement
with Bangladesh for supply of 250MW electricity and the
supply should start from December 1, 2013. Moreover, the
management of PTC sees high growth prospects in providing
power to consumers of load greater than one megawatt
(in the retail business), the open access customers.
Currently, PTC has more than 250 open access customers
across the country and expects the number to move up in
the coming days. During Q2FY2014, around 500MU were
contributed by the retail customers. The management
believes that this segment is in incubating phase and is
likely to witness growth. Hence, it aims to increase its
presence by taking the early mover advantage. Moreover,
this segment is expected to have a relatively better margin.
Even in case of the cross-border business with Bangladesh,
PTC is expected to earn a better margin in the range of 7-
8 paise per unit against 4 paisa per unit in the normal
domestic wholesale trading business.
Volumes from Meenakshi and Simhapuri plants could
go up in future
During Q2FY2014, the volume from both the Meenakashi
and the Simhapuri plant clubbed together stood at around
370MU, which indicates a low plant load factor. However,
the management shared that there was a scheduled plant
shutdown for 15 days in Simhapuri while the Meenakshi
plant got commissioned on May 30, 2013 only and hence
has yet to stabilise. We believe that after the stabilisation
of the Meenakshi plant, the volume may go up from the
facility, which usually earns significantly higher margin
compared with the core trading business.
1.0%
1.3%
1.5%
1.8%
2.0%
2.3%
2.5%Q
1FY
12
Q2F
Y12
Q3F
Y12
Q4F
Y12
Q1F
Y13
Q2F
Y13
Q3F
Y13
Q4F
Y13
Q1F
Y14
Q2F
Y14
Operating margin (%)
Operating profit margin (%)
investors eye stock update
5Sharekhan Home NextNovember 18, 2013
Viewpositive triggers unfolding; maintain Buy
After the restructuring of the state electricity boards
(SEBs) large funds stuck with the SEBs are coming back,
the trading volume is looking up and the long-term volume
(better margin) is likely to move up too. Moreover, the
management seems to be more confident of achieving a
profitable growth now and aims to improve the returns
ratio from the current level in the next two years.
Stringent risk management and a better balance sheet
should be positive for the company. Hence, we remain
positive on the stock and retain our Buy rating on it. Based
on the upward revision in our net profit estimates, we
have raised our sum-of-the-parts (SOTP)-based price
target to Rs70 per share from Rs65 earlier.
Valuations
Particulars FY12 FY13 FY14E FY15E
Net sales (Rs cr) 7,650 8,856 10,677 12,096
Operating Profit (Rs cr) 145 169 181 198
Net profit (Rs cr) 120 127 151 166
EPS (Rs) 4.1 4.3 5.1 5.6
YoY growth % -13.2 5.7 18.9 9.9
PER (x) 14.4 13.6 11.4 10.4
P/BV (x) 0.8 0.7 0.7 0.7
EV/EBIDTA (x) 8.6 7.6 4.3 4.1
RoCE (%) 8.5 7.6 8.7 9.2
RoE (%) 5.3 5.5 6.3 6.6
Dividend yield (%) 2.6 2.7 3.1 3.4
investors eye stock update
Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.
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