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Earnings beat estimates, backed by 20% volume growth
PTC India (PTC) reported adjusted PAT of INR 358 mn (up 53% Y-o-Y), against
our estimates of INR 250 mn. The growth is on the back of 7.7 bn kWh volumes
traded and sustained margins at 5 paise/kWh (4 paise/kWh last year). It is
noteworthy that the company delivered improvement in volumes and margins
despite a slack period in merchant power, with PTC’s average selling rate at INR
3.2/kWh versus INR 3.9/kWh in Q2FY10. Given that merchant trades are
improving and the forward curve is pointing towards rates near INR 4.5-4.8, we
believe PTC will maintain its margins in FY11.
ESOP expense write back deflates employee cost
PTC has historically written off its ESOP related expenses in the P&L account,
recording higher employee costs. In Q2FY11, there has been a reversal in these
ESOP expenses (INR 57 mn), resulting in negative wage costs. The regular wage
cost for this quarter is at INR 24 mn. Similarly, in Q2FY11, the company had
recorded one-time income on rebate reversal at INR 110 mn. Adjusted for these,
PAT is up 53% Y-o-Y.
Key Triggers - PFS IPO, tolling projects, resolve Karcham dispute
The management is targeting to list its subsidiary PTC Financial Services (PFS)
by Q4FY11 (we valued at 1x book value versus 1.3-1.7x of peers). The dispute
with JP Power Ventures on the Karcham - Wangtoo project is currently under
arbitration. An amicable settlement of the dispute would add 1,000 MW to PTC’s
PPA basket in FY12 (currently not factored), improving earnings and valuations.
The 350 MW tolling projects with Madhucon and Meenakshi are scheduled to
commission in FY12, while we have factored them in FY13.
Outlook and valuations: Volume estimates upgraded; maintain ‘BUY’
Given that PTC has achieved 13.5 bn kWh in H1FY11 (68% of our full year
estimates), we have revised our volume estimates to 21.5 bn units (20 bn units
earlier), and maintain margin expectations at 5 paise /kWh for FY11. We have
raised the FY11 EPS estimates by 2% and by 7% for FY12. Cash on books has
improved to INR 11.5 bn, while we now value PFS at 1x book value (from 0.8x
earlier). We maintain ‘BUY/Sector Outperformer’ on the stock, with revised
SOTP target of INR 144.
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