FDI in power exchanges: Impact negligible...
The Cabinet Committee on Economic Affairs (CCEA) has given approval
for FDI up to 49% in power exchanges. This move, though a step in the
right direction, would not have a material positive impact on PTC India.
The company, via its subsidiary PTC Financial Services (PFS), holds a 5%
stake in the India Energy Exchange as of Q1FY13. The absolute amount of
investment for a 5% stake amounts to | 1.5 crore on a historical cost
basis, which when calculated on hefty premium to past deals for equity
stake in IEX provides miniscule impact on overall valuation of PTC India.
PFS has sold 14% stake in IEX in FY12 and currently owns 5%
In FY12, PFS had sold its 14% stake in IEX at | 166/share thereby valuing
the exchange at ~| 500 crore. Currently, PFS owns a 5% stake in IEX,
which translates into an absolute holding of | 25 crore. The current stake
translates into | 0.5/share into PTC India (PTC holds a 60% stake in PFS,
which, in turn, holds 5% in IEX). Even under an imaginative Blue Sky
scenario, wherein a new foreign investor come in and values at 2x the last
equity deal (thereby valuing IEX at | 1000 crore) that would only result in
| 1/share accretion in PTC India’s share price. Hence, we believe that until
maturity and scalability of Indian power exchanges is not attained, the
current FDI move will be sentiment positive in the near term.
Power sector reforms like fuel linkage and SEB to be key drivers
We believe timely receipt of dues from TNEB throughout FY13 and tariff
revisions by UP SEB will lead to cash flow improvement and,
subsequently, open doors for PTC to resume trading with these states,
which can meaningfully contribute to trading volumes and profitability.
We have valued PTC on an SOTP basis and assigned a target price of
| 65/share.
http://content.icicidirect.com/mailimages/ICICIDirect_PTCIndia_QuickComment.pdf
http://content.icicidirect.com/mailimages/ICICIDirect_PTCIndia_QuickComment.pdf
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