PTC - Power tariff hiked by 37% in Tamil Nadu; ; Buy; Edelweiss PDF link

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PTC (PTCIN IN, INR 67, Buy)

The Tamil Nadu electricity regulatory commission has approved 37% tariff hike by truing up prior period expenses, factoring in carrying cost of FY11 and FY12 revenue gap and also recalibrating the state power entity’s expenses forecasts for FY13. We expect this move to reduce PTC India’s (PTC) working capital funding to the extent of at least INR6bn (dues from TN) and also aid earnings. Maintain BUY with TP of INR83/share (INR69/share earlier).

Tariff hike to facilitate timely payments

Tamil Nadu Electricity Regulatory Commission’s (TNERC) order of a 37% hike in power tariff would help Tamil Nadu Electricity Board (TNEB) to garner ~INR79bn in FY13. Since the hike factors in truing up of prior period expenses (including power purchases in FY11 and FY12), it should enable timely payments to the power suppliers who have been delayed payments in the past. PTC had facilitated sale of power to TNEB and currently has receivables of ~INR6bn post collecting INR1bn in H2FY12.

Merchant purchases to be on the rise

With ballooning debtors on account of payment delays from select SEBs, PTC had stopped further sale to them, which dented its FY12 volumes as well as margins. TNERC tariff order has envisaged shortage of ~2bn units in FY13 which is to be met by procuring short-term power through traders (refer appendix below) at a cost of INR8bn. With SEB related issues getting addressed in other states as well, we believe trading would resume as buying power increases. Since tariffs have also been hiked, the higher purchase costs could aid margins too. 

Outlook and valuations: Shot in the arm; maintain ‘BUY’

The recent tariff hike should improve financial health of the cash strapped TNEB over a period of time. This will ensure payments to PTC, which will eventually bring down working capital pressures (lower interest costs and higher treasury income). Additionally, the surcharge income that would be booked will help offset the higher costs booked during the past quarters. Maintain ‘BUY’ with SOTP based target price of INR 83/share (INR69/share earlier).

    

   

PTC - Power tariff hiked by 37% in Tamil Nadu; event update; Buy

Regards,