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PTC India: Power trading business expected to double volumes till FY13, Working Capital maintained
3QFY11 financial performance above estimates, given higher retained rebates, etc: During 3QFY11, PTC India's
reported net profit of Rs354m (up 125% YoY) includes includes i) Rebate retained Rs118m and ii) late payment
surcharge received from SEBs Rs96m; vs average Rs20-40m / qtr over past 4 quarters. Operational performance is
below estimates as adjusted trading margins stand at Paise4.3/unit and are lower than 1HFY11 at Paise4.8/unit.
Lower margins are attributable to i) change in composition of volumes towards power exchange and cross border
trades which have lower margins ii) increased competitive intensity.
Power trading business expected to double volumes till FY13, Long term drivers intact: Long term (LT) power
portfolio for PTC currently comprises of 2.3GW and will add 1.4GW in FY12, 4.5GW in FY13, etc. We expect trading
volumes in FY11 at 23.6BUs and the management indicated addition of 6BUs in FY12 and 25BUs in FY13. This will
lead to more than doubling of the current trading volumes over the next 2 years, driving growth.
PTC has signed Power Sale Agreement (PSA) for 3,594MW of projects cumulatively. This excludes ~3GW of
capacities where PTC has emerged as the lowest bidders in Case 1 bidding and these contracts will provide good
visibility on the build up of long term trading portfolio.
Stock correction provides Buying opportunity: PTC has cash and cash equivalent of Rs11b, and has investments
of Rs7b into subsidiaries/project SPVs. We expect PTC to report consolidated net profit of Rs1.6b in FY11E (up
45% YoY), Rs3.1b in FY12E (up 88% YoY) and Rs4.2b in FY13 (up 36% YoY). The stock trades at reported PER of
14.3x FY11E, 7.6x FY12E and 5.6x FY13E. Maintain Buy, with Price target of Rs144/sh (upside of 80%).
3QFY11 financial performance above estimates, given higher retained
rebates, etc
? During 3QFY11, PTC India reported revenues of Rs18b (up 3.5% YoY), EBIDTA of
Rs383m (up 270% YoY) and net profit of Rs354m (up 125% YoY). Reported PAT
includes i) Rebate retained Rs118m and ii) late payment surcharge received from
SEBs Rs96m; vs average Rs20-40m / qtr over past 4 quarters.
? Reported net profit at Rs354m is better than estimates of Rs286m, given higher volumes
at 5.8BUs (estimate 4.7BUs) and increased rebate / surcharge income.
3QFY11 operational performance below estimates, margin contraction
witnessed on LT trades
? Trading volumes stood at 5,813MUs, up 31% YoY. Power traded through exchanges
stood at 19.5% of the total volumes, vs 10-11% in 1Q/2QFY11. Realisation for 3QFY11
stood at Rs3.02/unit, vs Rs3.82/unit YoY and Rs4.80/unit in 1QFY11.
? Adjusted for the rebate retained and surcharge received, trading margins stand at
Paise4.3/unit. These are lower than margins reported in 1HFY11 at Paise4.8/unit.
Lower margins are attributable to i) change in composition of volumes towards power
exchange and cross border trades which have lower margins ii) increased competitive
intensity.
Power trading business expected to double volumes till FY13, Long term
drivers intact
Long term (LT) power portfolio for PTC currently comprises of 2.3GW as: 225MW
Baglihar HEP, 300MW Lanco Amarkantak Phase-1, 56MW of Hydro power project,
1,400MW of power import from Bhutan, 100MW Torrent Power -Sugen, 70MW Lanco
Himachal, etc.
Lanco Amarkantak Phase 2 is still selling power in UI market and the matter is subjudice.
In FY12, addition to long term trading portfolio is expected at ~1.4GW comprising
of 0.7GW from Karcham Wangtoo, etc. FY13 will include commissioning of 1.3GW
of Teestha Hyde\ro power project, plus ~3GW of thermal projects.
We expect trading volumes in FY11 at 23.6BUs and the management expects addition
of 6BUs in FY12 and 25BUs in FY13. This will lead to more than doubling of the
current trading volumes over the next 2 years, driving growth.
During 3QFY11, cumulative Long Term Power Purchase Agreement (PPA) signed
by PTC stood at 14,186MW, an addition of 186MW to its portfolio in the quarter. PTC
has also signed Power Sale Agreement (PSA) for 3,594MW of projects cumulatively.
This excludes ~3GW of capacities where PTC has emerged as the lowest bidders in
Case 1 bidding by Karnataka (1380MW), Andhra (1400MW) and Bihar (300MW).
These contracts are expected to be signed over the next 1-2 quarters will provide a
good visibility on the build up of long term trading portfolio for the company.
The management also indicated that the gap between receivables and payables as at
Dec 10 stands at 18 days. This is largely due to an aberration given ongoing
corporatisation of Tamilnadu discoms, as billing falls in January and they had outstanding
payables of Rs1.5. This amount is fully received in January 2011 and the gap has now
again reduced to 4.8 days. This compares with 5 days in Sept 10 and ~9.5 days in
March 10; and indicates limited impact on working capital position of PTC.
PTC Financial Services (PFS) and PTC Energy (PEL) witnessing business
traction
PTC investments includes: PFS Rs4.5b (77% subsidiary), PEL Rs410m (Sanctions is
Rs2b), Athena Energy Rs1.15b (sanctions Rs1.5b), Teestha Rs1.42b (sanctions Rs1.35b
+ 10%), KG Basin project Rs200m (sanction Rs400m).
Tolling projects includes: 200MW to be commissioned in July 2011 and 150MW in
Dec 2011. PTC will capture the difference between the dark spread and spark spread,
and we expect a meaningful contribution to profitability from FY13 onwards (Rs1.3b).
PTC has already tied up imported coal under long term 5 year contracts with a floor
and a cap, from a coal miner in Indonesia, which will result in competitive fuel costs.
Stock correction provides Buying opportunity
PTC has cash and cash equivalent of Rs11b, and has investments of Rs7b into
subsidiaries/project SPVs.
We expect PTC to report consolidated net profit of Rs1.6b in FY11E (up 45% YoY),
Rs3.1b in FY12E (up 88% YoY) and Rs4.2b in FY13 (up 36% YoY). The stock trades
at reported PER of PER of 14.3x FY11E, 7.6x FY12E and 5.6x FY13E. Maintain
Buy, with Price target of Rs144/sh (upside of 78%).
Company background
PTC India Ltd. is the pioneer in power trading in India, and
over the years has become a Power Solutions company. It
was set up in April 1999 with a mandate to catalyze the
development of large power projects by acting as a single
buyer for PPAs with independent power producers on one
hand and by entering multi-partite PPAs with users and
SEBs under long-term arrangements on the other. The GoI
has identified PTC as its nodal agency for trading power
with neighboring countries. For FY10 PTC India has market
share of 44% in ST Volumes.
Key investment arguments
Change in business mix towards long-term contracts
extends volume and margin visibility and PTC to benefit
from CERC regulation of no cap on long term volume.
Addressable market of PTC to rise due to open access
to intra-state transmission, easing of inter state grid
constraints, commissioning of new merchant power
plants, etc
PTC Financial Services (PFS) and PTC Energy (PEL)
witnessing business traction. PFS has book size of
Rs15.1b as on Q1FY11 and sanctioned debt and equity
of Rs19.5b and Rs5b respectively.
Key investment risks
Changes in the regulatory regime
Increasing competition in the short-term market
Power off-take risk in executing long-term contracts
Recent development
PTC Ashmore fund launched and expected to close
with fund size of USD300m by Q3FY11.
In-Principle approval from board for IPO in current
financial year.
Valuation and view
PTC has cash and cash equivalent of Rs11b, and has
investments of Rs7b into subsidiaries/project SPVs.
We expect PTC to report consolidated net profit of
Rs1.6b in FY11E (up 45% YoY), Rs3.1b in FY12E (up
88% YoY) and Rs4.2b in FY13 (up 36% YoY). The
stock trades at reported PER of PER of 14.3x FY11E,
7.6x FY12E and 5.6x FY13E. Maintain Buy, with Price
target of Rs144/sh (upside of 78%).
Sector view
We believe that the Indian power sector offers
Significant growth potential. Incumbents, especially the
CPSUs and private players, enjoy growth optionally,
This could be in multiples of the current size
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
PTC India: Power trading business expected to double volumes till FY13, Working Capital maintained
3QFY11 financial performance above estimates, given higher retained rebates, etc: During 3QFY11, PTC India's
reported net profit of Rs354m (up 125% YoY) includes includes i) Rebate retained Rs118m and ii) late payment
surcharge received from SEBs Rs96m; vs average Rs20-40m / qtr over past 4 quarters. Operational performance is
below estimates as adjusted trading margins stand at Paise4.3/unit and are lower than 1HFY11 at Paise4.8/unit.
Lower margins are attributable to i) change in composition of volumes towards power exchange and cross border
trades which have lower margins ii) increased competitive intensity.
Power trading business expected to double volumes till FY13, Long term drivers intact: Long term (LT) power
portfolio for PTC currently comprises of 2.3GW and will add 1.4GW in FY12, 4.5GW in FY13, etc. We expect trading
volumes in FY11 at 23.6BUs and the management indicated addition of 6BUs in FY12 and 25BUs in FY13. This will
lead to more than doubling of the current trading volumes over the next 2 years, driving growth.
PTC has signed Power Sale Agreement (PSA) for 3,594MW of projects cumulatively. This excludes ~3GW of
capacities where PTC has emerged as the lowest bidders in Case 1 bidding and these contracts will provide good
visibility on the build up of long term trading portfolio.
Stock correction provides Buying opportunity: PTC has cash and cash equivalent of Rs11b, and has investments
of Rs7b into subsidiaries/project SPVs. We expect PTC to report consolidated net profit of Rs1.6b in FY11E (up
45% YoY), Rs3.1b in FY12E (up 88% YoY) and Rs4.2b in FY13 (up 36% YoY). The stock trades at reported PER of
14.3x FY11E, 7.6x FY12E and 5.6x FY13E. Maintain Buy, with Price target of Rs144/sh (upside of 80%).
3QFY11 financial performance above estimates, given higher retained
rebates, etc
? During 3QFY11, PTC India reported revenues of Rs18b (up 3.5% YoY), EBIDTA of
Rs383m (up 270% YoY) and net profit of Rs354m (up 125% YoY). Reported PAT
includes i) Rebate retained Rs118m and ii) late payment surcharge received from
SEBs Rs96m; vs average Rs20-40m / qtr over past 4 quarters.
? Reported net profit at Rs354m is better than estimates of Rs286m, given higher volumes
at 5.8BUs (estimate 4.7BUs) and increased rebate / surcharge income.
3QFY11 operational performance below estimates, margin contraction
witnessed on LT trades
? Trading volumes stood at 5,813MUs, up 31% YoY. Power traded through exchanges
stood at 19.5% of the total volumes, vs 10-11% in 1Q/2QFY11. Realisation for 3QFY11
stood at Rs3.02/unit, vs Rs3.82/unit YoY and Rs4.80/unit in 1QFY11.
? Adjusted for the rebate retained and surcharge received, trading margins stand at
Paise4.3/unit. These are lower than margins reported in 1HFY11 at Paise4.8/unit.
Lower margins are attributable to i) change in composition of volumes towards power
exchange and cross border trades which have lower margins ii) increased competitive
intensity.
Power trading business expected to double volumes till FY13, Long term
drivers intact
Long term (LT) power portfolio for PTC currently comprises of 2.3GW as: 225MW
Baglihar HEP, 300MW Lanco Amarkantak Phase-1, 56MW of Hydro power project,
1,400MW of power import from Bhutan, 100MW Torrent Power -Sugen, 70MW Lanco
Himachal, etc.
Lanco Amarkantak Phase 2 is still selling power in UI market and the matter is subjudice.
In FY12, addition to long term trading portfolio is expected at ~1.4GW comprising
of 0.7GW from Karcham Wangtoo, etc. FY13 will include commissioning of 1.3GW
of Teestha Hyde\ro power project, plus ~3GW of thermal projects.
We expect trading volumes in FY11 at 23.6BUs and the management expects addition
of 6BUs in FY12 and 25BUs in FY13. This will lead to more than doubling of the
current trading volumes over the next 2 years, driving growth.
During 3QFY11, cumulative Long Term Power Purchase Agreement (PPA) signed
by PTC stood at 14,186MW, an addition of 186MW to its portfolio in the quarter. PTC
has also signed Power Sale Agreement (PSA) for 3,594MW of projects cumulatively.
This excludes ~3GW of capacities where PTC has emerged as the lowest bidders in
Case 1 bidding by Karnataka (1380MW), Andhra (1400MW) and Bihar (300MW).
These contracts are expected to be signed over the next 1-2 quarters will provide a
good visibility on the build up of long term trading portfolio for the company.
The management also indicated that the gap between receivables and payables as at
Dec 10 stands at 18 days. This is largely due to an aberration given ongoing
corporatisation of Tamilnadu discoms, as billing falls in January and they had outstanding
payables of Rs1.5. This amount is fully received in January 2011 and the gap has now
again reduced to 4.8 days. This compares with 5 days in Sept 10 and ~9.5 days in
March 10; and indicates limited impact on working capital position of PTC.
PTC Financial Services (PFS) and PTC Energy (PEL) witnessing business
traction
PTC investments includes: PFS Rs4.5b (77% subsidiary), PEL Rs410m (Sanctions is
Rs2b), Athena Energy Rs1.15b (sanctions Rs1.5b), Teestha Rs1.42b (sanctions Rs1.35b
+ 10%), KG Basin project Rs200m (sanction Rs400m).
Tolling projects includes: 200MW to be commissioned in July 2011 and 150MW in
Dec 2011. PTC will capture the difference between the dark spread and spark spread,
and we expect a meaningful contribution to profitability from FY13 onwards (Rs1.3b).
PTC has already tied up imported coal under long term 5 year contracts with a floor
and a cap, from a coal miner in Indonesia, which will result in competitive fuel costs.
Stock correction provides Buying opportunity
PTC has cash and cash equivalent of Rs11b, and has investments of Rs7b into
subsidiaries/project SPVs.
We expect PTC to report consolidated net profit of Rs1.6b in FY11E (up 45% YoY),
Rs3.1b in FY12E (up 88% YoY) and Rs4.2b in FY13 (up 36% YoY). The stock trades
at reported PER of PER of 14.3x FY11E, 7.6x FY12E and 5.6x FY13E. Maintain
Buy, with Price target of Rs144/sh (upside of 78%).
Company background
PTC India Ltd. is the pioneer in power trading in India, and
over the years has become a Power Solutions company. It
was set up in April 1999 with a mandate to catalyze the
development of large power projects by acting as a single
buyer for PPAs with independent power producers on one
hand and by entering multi-partite PPAs with users and
SEBs under long-term arrangements on the other. The GoI
has identified PTC as its nodal agency for trading power
with neighboring countries. For FY10 PTC India has market
share of 44% in ST Volumes.
Key investment arguments
Change in business mix towards long-term contracts
extends volume and margin visibility and PTC to benefit
from CERC regulation of no cap on long term volume.
Addressable market of PTC to rise due to open access
to intra-state transmission, easing of inter state grid
constraints, commissioning of new merchant power
plants, etc
PTC Financial Services (PFS) and PTC Energy (PEL)
witnessing business traction. PFS has book size of
Rs15.1b as on Q1FY11 and sanctioned debt and equity
of Rs19.5b and Rs5b respectively.
Key investment risks
Changes in the regulatory regime
Increasing competition in the short-term market
Power off-take risk in executing long-term contracts
Recent development
PTC Ashmore fund launched and expected to close
with fund size of USD300m by Q3FY11.
In-Principle approval from board for IPO in current
financial year.
Valuation and view
PTC has cash and cash equivalent of Rs11b, and has
investments of Rs7b into subsidiaries/project SPVs.
We expect PTC to report consolidated net profit of
Rs1.6b in FY11E (up 45% YoY), Rs3.1b in FY12E (up
88% YoY) and Rs4.2b in FY13 (up 36% YoY). The
stock trades at reported PER of PER of 14.3x FY11E,
7.6x FY12E and 5.6x FY13E. Maintain Buy, with Price
target of Rs144/sh (upside of 78%).
Sector view
We believe that the Indian power sector offers
Significant growth potential. Incumbents, especially the
CPSUs and private players, enjoy growth optionally,
This could be in multiples of the current size
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