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2QFY12 performance below expectations: PTC India reported muted performance for 2QFY12. PAT was stagnant
YoY at INR356m, lower than our estimate of INR446m. PAT was lower than anticipated primarily due to higher than
expected interest cost at INR79m v/s INR17m in 1QFY12 and INR11m in 2QFY11. Trading volumes for the quarter
were 8.7BU, up 12% YoY. Excluding rebate/surcharge income (INR144m), adjusted margin was 4.16paise/unit (v/s
4.60paise/unit in 2QFY11 and average of 4.80paise/unit in the last five quarters). Margin was under pressure partially
due to change in sales mix.
Debtors up sizably; conscious decision to alter business framework for select states: Debtor days were 96
v/s 40 as at March 2011. Debtors include dues of INR10b from Tamil Nadu (TN, INR7b) and Uttar Pradesh (UP,
INR3b) ranging from 30-60 days. To address the challenges of stress in the system and exposing its own balance
sheet as an intermediary, PTC has decided to (1) stop supplying power to TN from September 2011, and (2) take no
counter party risk for UP DISCOMs. In the case of UP, PTC will now pay the dues as and when received from
DISCOMs; it will not make upfront payment to developers.
Power sale agreement signed for tolling projects: PTC Energy's 200MW Simhapuri tolling project is now likely
to commission in December 2011 (v/s the earlier expectation of September 2011). Coal for the project will be
supplied through PTC Energy and generation should begin from January 2012. The management highlighted that it
has already entered into a power sale agreement (PSA) for the sale of power from January 2012 at a tariff INR4+/unit.
Valuation and view: We expect PTC to report consolidated net profit of INR2.6b in FY12 (up 50%) and INR2.9b in
FY13 (up 18%). The stock trades at 8x FY12E and 7x FY13E consolidated earnings. Maintain Buy.
2QFY12 performance below expectations: PTC India reported muted performance for 2QFY12. PAT was stagnant
YoY at INR356m, lower than our estimate of INR446m. PAT was lower than anticipated primarily due to higher than
expected interest cost at INR79m v/s INR17m in 1QFY12 and INR11m in 2QFY11. Trading volumes for the quarter
were 8.7BU, up 12% YoY. Excluding rebate/surcharge income (INR144m), adjusted margin was 4.16paise/unit (v/s
4.60paise/unit in 2QFY11 and average of 4.80paise/unit in the last five quarters). Margin was under pressure partially
due to change in sales mix.
Debtors up sizably; conscious decision to alter business framework for select states: Debtor days were 96
v/s 40 as at March 2011. Debtors include dues of INR10b from Tamil Nadu (TN, INR7b) and Uttar Pradesh (UP,
INR3b) ranging from 30-60 days. To address the challenges of stress in the system and exposing its own balance
sheet as an intermediary, PTC has decided to (1) stop supplying power to TN from September 2011, and (2) take no
counter party risk for UP DISCOMs. In the case of UP, PTC will now pay the dues as and when received from
DISCOMs; it will not make upfront payment to developers.
Power sale agreement signed for tolling projects: PTC Energy's 200MW Simhapuri tolling project is now likely
to commission in December 2011 (v/s the earlier expectation of September 2011). Coal for the project will be
supplied through PTC Energy and generation should begin from January 2012. The management highlighted that it
has already entered into a power sale agreement (PSA) for the sale of power from January 2012 at a tariff INR4+/unit.
Valuation and view: We expect PTC to report consolidated net profit of INR2.6b in FY12 (up 50%) and INR2.9b in
FY13 (up 18%). The stock trades at 8x FY12E and 7x FY13E consolidated earnings. Maintain Buy.
Debtors up sizably; conscious decision to alter business framework for
select states
In 2QFY12, interest expenses were INR79m, due to working capital loan of INR4b
(v/s nil in FY11), as debtors increased substantially from INR9.8b in 2QFY11 to
INR23b.Debtor days were 96 v/s 40 as at March 2011. Earlier, PTC used to manage
working capital requirement out of the ~INR10b cash/liquid investments on its books,
as net working capital requirement was always lower. In 2QFY12, net working capital
requirement (net of creditors) stood at INR13b, necessitating additional working capital
facility.
Debtors include dues of INR10b from Tamil Nadu (TN, INR7b) and Uttar Pradesh
(UP, INR3b) ranging from 30-60 days. To address the challenges of stress in the
system and exposing its own balance sheet as an intermediary, PTC has decided to
(1) stop supplying power to TN from September 2011, and (2) take no counter party
risk for UP DISCOMs. In the case of UP, PTC will now pay the dues as and when
received from DISCOMs; it will not make upfront payment to developers. This will
also mean that PTC will pass on any benefit of rebate income or surcharge to the
developers.
The management stated that this is a concious decision, given increased risk in the
system. Though the modus operandi could be currently affected for two states, we
believe that the framework may be put in place for other states if dues are dealyed.
The structural change in business model by PTC, though positive, is a bit late, in our
view. According to the management, the first priority is to realise the outstanding dues
of TN and UP. This experience will limit the exposure of its own balance sheet for
supporting the trading business, in our view.
Power sale agreement signed for tolling projects
PTC Energy's 200MW Simhapuri tolling project is now likely to commission in
December 2011 (v/s the earlier expectation of September 2011). Coal for the project
will be supplied through PTC Energy and generation should begin from January 2012.
The management highlighted that it has already entered into a power sale agreement
(PSA) for the sale of power from January 2012 at a tariff INR4+/unit.
The 200MW Meenakshi project is likely to be commissioned by June 2012.
Valuation and view
We expect PTC to report consolidated net profit of INR2.6b in FY12 (up 50%) and
INR2.9b in FY13 (up 18%).
The stock trades at 8x FY12E and 7x FY13E consolidated earnings. Maintain Buy.
Company description
PTC India is the pioneer in power trading in India. Over
the years, it 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 the
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 FY11, PTC India
had market share of 40% in ST volumes.
Key investment arguments
Change in business mix towards long-term contracts
extends volume and margin visibility. PTC should
benefit from CERC regulation of no cap on long-term
volumes.
Addressable market of PTC is likely 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)
are witnessing business traction. As at December 2010,
PFS' equity base was INR4.4b and net worth was
INR6.6b, which would increase to INR5.6b and
INR10.2b, respectively post issue.
Key investment risks
Changes in the regulatory regime
Increasing competition in the short-term market
Power offtake risk in executing long-term contracts
Recent development
Debtors as at end-2QFY12 stood at 96 days v/s 40
days as at March 2011.
PTC Energy's 200MW Simhapuri tolling project is now
likely to commission in December 2011.
Valuation and view
We expect PTC to report consolidated net profit of
INR2.6b in FY12 (up 50%) and INR2.9b in FY13 (up
18%).
The stock trades at 8x FY12E and 7x FY13E
consolidated earnings. Maintain Buy.
Sector view
The power sector has seen significant valuation derating
due to concerns over delayed capacity additions,
merchant prices, lower demand, and fuel supply issues.
We are positive about companies that are relatively
better positioned on these fronts.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
2QFY12 performance below expectations: PTC India reported muted performance for 2QFY12. PAT was stagnant
YoY at INR356m, lower than our estimate of INR446m. PAT was lower than anticipated primarily due to higher than
expected interest cost at INR79m v/s INR17m in 1QFY12 and INR11m in 2QFY11. Trading volumes for the quarter
were 8.7BU, up 12% YoY. Excluding rebate/surcharge income (INR144m), adjusted margin was 4.16paise/unit (v/s
4.60paise/unit in 2QFY11 and average of 4.80paise/unit in the last five quarters). Margin was under pressure partially
due to change in sales mix.
Debtors up sizably; conscious decision to alter business framework for select states: Debtor days were 96
v/s 40 as at March 2011. Debtors include dues of INR10b from Tamil Nadu (TN, INR7b) and Uttar Pradesh (UP,
INR3b) ranging from 30-60 days. To address the challenges of stress in the system and exposing its own balance
sheet as an intermediary, PTC has decided to (1) stop supplying power to TN from September 2011, and (2) take no
counter party risk for UP DISCOMs. In the case of UP, PTC will now pay the dues as and when received from
DISCOMs; it will not make upfront payment to developers.
Power sale agreement signed for tolling projects: PTC Energy's 200MW Simhapuri tolling project is now likely
to commission in December 2011 (v/s the earlier expectation of September 2011). Coal for the project will be
supplied through PTC Energy and generation should begin from January 2012. The management highlighted that it
has already entered into a power sale agreement (PSA) for the sale of power from January 2012 at a tariff INR4+/unit.
Valuation and view: We expect PTC to report consolidated net profit of INR2.6b in FY12 (up 50%) and INR2.9b in
FY13 (up 18%). The stock trades at 8x FY12E and 7x FY13E consolidated earnings. Maintain Buy.
2QFY12 performance below expectations: PTC India reported muted performance for 2QFY12. PAT was stagnant
YoY at INR356m, lower than our estimate of INR446m. PAT was lower than anticipated primarily due to higher than
expected interest cost at INR79m v/s INR17m in 1QFY12 and INR11m in 2QFY11. Trading volumes for the quarter
were 8.7BU, up 12% YoY. Excluding rebate/surcharge income (INR144m), adjusted margin was 4.16paise/unit (v/s
4.60paise/unit in 2QFY11 and average of 4.80paise/unit in the last five quarters). Margin was under pressure partially
due to change in sales mix.
Debtors up sizably; conscious decision to alter business framework for select states: Debtor days were 96
v/s 40 as at March 2011. Debtors include dues of INR10b from Tamil Nadu (TN, INR7b) and Uttar Pradesh (UP,
INR3b) ranging from 30-60 days. To address the challenges of stress in the system and exposing its own balance
sheet as an intermediary, PTC has decided to (1) stop supplying power to TN from September 2011, and (2) take no
counter party risk for UP DISCOMs. In the case of UP, PTC will now pay the dues as and when received from
DISCOMs; it will not make upfront payment to developers.
Power sale agreement signed for tolling projects: PTC Energy's 200MW Simhapuri tolling project is now likely
to commission in December 2011 (v/s the earlier expectation of September 2011). Coal for the project will be
supplied through PTC Energy and generation should begin from January 2012. The management highlighted that it
has already entered into a power sale agreement (PSA) for the sale of power from January 2012 at a tariff INR4+/unit.
Valuation and view: We expect PTC to report consolidated net profit of INR2.6b in FY12 (up 50%) and INR2.9b in
FY13 (up 18%). The stock trades at 8x FY12E and 7x FY13E consolidated earnings. Maintain Buy.
Debtors up sizably; conscious decision to alter business framework for
select states
In 2QFY12, interest expenses were INR79m, due to working capital loan of INR4b
(v/s nil in FY11), as debtors increased substantially from INR9.8b in 2QFY11 to
INR23b.Debtor days were 96 v/s 40 as at March 2011. Earlier, PTC used to manage
working capital requirement out of the ~INR10b cash/liquid investments on its books,
as net working capital requirement was always lower. In 2QFY12, net working capital
requirement (net of creditors) stood at INR13b, necessitating additional working capital
facility.
Debtors include dues of INR10b from Tamil Nadu (TN, INR7b) and Uttar Pradesh
(UP, INR3b) ranging from 30-60 days. To address the challenges of stress in the
system and exposing its own balance sheet as an intermediary, PTC has decided to
(1) stop supplying power to TN from September 2011, and (2) take no counter party
risk for UP DISCOMs. In the case of UP, PTC will now pay the dues as and when
received from DISCOMs; it will not make upfront payment to developers. This will
also mean that PTC will pass on any benefit of rebate income or surcharge to the
developers.
The management stated that this is a concious decision, given increased risk in the
system. Though the modus operandi could be currently affected for two states, we
believe that the framework may be put in place for other states if dues are dealyed.
The structural change in business model by PTC, though positive, is a bit late, in our
view. According to the management, the first priority is to realise the outstanding dues
of TN and UP. This experience will limit the exposure of its own balance sheet for
supporting the trading business, in our view.
Power sale agreement signed for tolling projects
PTC Energy's 200MW Simhapuri tolling project is now likely to commission in
December 2011 (v/s the earlier expectation of September 2011). Coal for the project
will be supplied through PTC Energy and generation should begin from January 2012.
The management highlighted that it has already entered into a power sale agreement
(PSA) for the sale of power from January 2012 at a tariff INR4+/unit.
The 200MW Meenakshi project is likely to be commissioned by June 2012.
Valuation and view
We expect PTC to report consolidated net profit of INR2.6b in FY12 (up 50%) and
INR2.9b in FY13 (up 18%).
The stock trades at 8x FY12E and 7x FY13E consolidated earnings. Maintain Buy.
Company description
PTC India is the pioneer in power trading in India. Over
the years, it 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 the
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 FY11, PTC India
had market share of 40% in ST volumes.
Key investment arguments
Change in business mix towards long-term contracts
extends volume and margin visibility. PTC should
benefit from CERC regulation of no cap on long-term
volumes.
Addressable market of PTC is likely 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)
are witnessing business traction. As at December 2010,
PFS' equity base was INR4.4b and net worth was
INR6.6b, which would increase to INR5.6b and
INR10.2b, respectively post issue.
Key investment risks
Changes in the regulatory regime
Increasing competition in the short-term market
Power offtake risk in executing long-term contracts
Recent development
Debtors as at end-2QFY12 stood at 96 days v/s 40
days as at March 2011.
PTC Energy's 200MW Simhapuri tolling project is now
likely to commission in December 2011.
Valuation and view
We expect PTC to report consolidated net profit of
INR2.6b in FY12 (up 50%) and INR2.9b in FY13 (up
18%).
The stock trades at 8x FY12E and 7x FY13E
consolidated earnings. Maintain Buy.
Sector view
The power sector has seen significant valuation derating
due to concerns over delayed capacity additions,
merchant prices, lower demand, and fuel supply issues.
We are positive about companies that are relatively
better positioned on these fronts.
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