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India Equity Research Reports, IPO and Stock News
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We were joined by Mr. Rakesh Kumar, EVP - Business development and Mr.
Varun Sethi, Manager, F&A, who shared their outlook on the company.
Poised for strong volume growth despite pressure on ST volumes
PTC is poised for strong volume growth of 30% during FY11-14E on the back of LT contracts
materializing through COD of the projects. Management expects about 6,000MW (out of
total PPA's signed of 14,000 MW) to commission between FY11-FY14E. This is likely to
change the current business mix in favor of long term volumes from 10% currently to 60%
in FY14E. This is because the short term volumes are likely to shift to exchanges and also,
the number of players are increasing - leading to pressure on these volumes.
Macro theme positive with large capacity additions and smaller trading
volumes
Massive capacity addition in the country (~180GW over two plan periods) with >50% private
participation (a large portion of their capacities reserved for merchant market), is bound to
significantly increase power trading volumes. Management expects the trading volumes
to grow significantly as the proportion of power traded (as a % of total generation) is
expected to increase from the current ~10% to ~15% over the next five years. This is
because power trading in India is currently at 10% of overall supply compared to developed
countries at 15%. Further, open access operationalization will give a boost.
Margins in short term trading - Though the regulatory cap on margins is higher at 7paise
in ST trading, PTC currently makes about 5 paise on an average. Management expects ST
volumes to be under pressure due to increasing competition and volumes shifting to
exchanges. Therefore, the ST margins are also likely to be under pressure.
Margins in long term trading - In long term trading, there is no regulatory cap and PTC
makes 5 (for first 5 years) to 10 paise (next 5 years) with upsides, if actual tariffs are higher
than CERC tariffs. In most of the cases, if actual tariffs are higher than CERC tariffs, 90%
of additional realizations will be passed on to the developers and balance would be
retained by PTC.
Power Tolling business - In power tolling business (360MW - contracted), PTC expects to
earn developer returns over and above earning trading margins at coal trading level (about
2% trading margins).
To become a complete solution provider in power - from being a pure trading company.
PTC has already ventured into power financing (through PTC Financial Services and is
also planning to have a dedicated fund). PTC has ventured into coal trading and conversion
business assuming the role of developers (PTC Energy).
Trades at 11xFY13E earnings; Risks - market and credit risk
PTC currently trades at 11xFY13E Bloomberg earnings estimates and 0.9xFY13E Book.
Key risks are- (1) merchant/PPA tariffs remaining below CERC tariffs and 2) defaults/
prolonged delays by any customer.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We were joined by Mr. Rakesh Kumar, EVP - Business development and Mr.
Varun Sethi, Manager, F&A, who shared their outlook on the company.
Poised for strong volume growth despite pressure on ST volumes
PTC is poised for strong volume growth of 30% during FY11-14E on the back of LT contracts
materializing through COD of the projects. Management expects about 6,000MW (out of
total PPA's signed of 14,000 MW) to commission between FY11-FY14E. This is likely to
change the current business mix in favor of long term volumes from 10% currently to 60%
in FY14E. This is because the short term volumes are likely to shift to exchanges and also,
the number of players are increasing - leading to pressure on these volumes.
Macro theme positive with large capacity additions and smaller trading
volumes
Massive capacity addition in the country (~180GW over two plan periods) with >50% private
participation (a large portion of their capacities reserved for merchant market), is bound to
significantly increase power trading volumes. Management expects the trading volumes
to grow significantly as the proportion of power traded (as a % of total generation) is
expected to increase from the current ~10% to ~15% over the next five years. This is
because power trading in India is currently at 10% of overall supply compared to developed
countries at 15%. Further, open access operationalization will give a boost.
Margins in short term trading - Though the regulatory cap on margins is higher at 7paise
in ST trading, PTC currently makes about 5 paise on an average. Management expects ST
volumes to be under pressure due to increasing competition and volumes shifting to
exchanges. Therefore, the ST margins are also likely to be under pressure.
Margins in long term trading - In long term trading, there is no regulatory cap and PTC
makes 5 (for first 5 years) to 10 paise (next 5 years) with upsides, if actual tariffs are higher
than CERC tariffs. In most of the cases, if actual tariffs are higher than CERC tariffs, 90%
of additional realizations will be passed on to the developers and balance would be
retained by PTC.
Power Tolling business - In power tolling business (360MW - contracted), PTC expects to
earn developer returns over and above earning trading margins at coal trading level (about
2% trading margins).
To become a complete solution provider in power - from being a pure trading company.
PTC has already ventured into power financing (through PTC Financial Services and is
also planning to have a dedicated fund). PTC has ventured into coal trading and conversion
business assuming the role of developers (PTC Energy).
Trades at 11xFY13E earnings; Risks - market and credit risk
PTC currently trades at 11xFY13E Bloomberg earnings estimates and 0.9xFY13E Book.
Key risks are- (1) merchant/PPA tariffs remaining below CERC tariffs and 2) defaults/
prolonged delays by any customer.
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