PTC India - Restructuring package a booster dose; event update; Buy:: Edelweiss

PTC India (PTCIN IN, INR 69, Buy)

PTC is one of the key beneficiaries of the SEB restructuring package announced by Government of India (GoI). The dues from Uttar Pradesh and Tamil Nadu discoms are to the extent of INR10bn, the recovery of which we believe could get expedited as the benefits from reforms trickle in. The funding of these receivables has been through internal accruals (so far) which when recovered will enhance earnings due to other income (over short term) and higher trading volumes (re-investing in growth). Maintain BUY with revised TP of INR90/share.

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Government initiates restructuring package

The Cabinet Committee of Economic Affairs has cleared “financial restructuring for state distribution companies” scheme, wherein the loss funded loans would be restructured/refinanced. The package entails state government taking over (including servicing of the same) 50% of such outstanding loans while the balance 50% would be restructured by banks with revised servicing terms (both principal and interest). GoI on its part will repay 25% of the state government adopted loans and state government apart from providing guarantees to banks (for loans) will also payout subsidies/dues in time to SEBs. The entire package is contingent on SEBs undertaken compulsory reforms to improve their operational performance.

First step in the reform process, but implementation is key

The rising loans lead to higher interest costs which impacted smooth SEB operations as they would have required higher tariff increases to recover the entire costs. The restructuring would not only bring down costs but also entail SEBs to seek Case 1 bids. However, the success of this restructuring is contingent on turnaround in performance (operational and hence financial) going forward.

Outlook and Valuation: Cash infusion with a lag; Maintain BUY

PTC will be a key beneficiary of the SEB reform package as the management expects the outstanding debtors of ~INR10bn from UP and TN to be recovered with a lag as and when the tariff hikes and operational improvements improve financial health of these SEBs. While we had already factored in repayment from TN, with additional support to weak SEBs like UP, now we are also factoring repayment from UP in our valuations. Revising TP to INR90/share (INR76/share earlier). Maintain ‘BUY’.

PTC India - Restructuring package a booster dose; event update; Buy

Regards,