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Spark Capital: PTC India- 4QFY13 Results Review




Spark Capital Advisors(India) Private Limited


29 May 2013





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Good quarter aided by rebate/ surcharge income; receivables improving; maintain ‘Buy’ PTC reported good set of numbers for the quarter with revenues of Rs. 21.99bn and net-profits of Rs. 371mn, a yoy increase of 52% in revenues and 24% in net-profits respectively. Company also witnessed a 53% yoy growth in number of units traded at ~6,732mn units of electricity (including 304mn units from the tolling segment). Company’s core trading business was stable in the quarter with trading margins at ~3.6 paisa. Tolling segment reported a good quarter as it realized margins of ~Rs. 0.7/ unit in selling power (aided by qoq lower imported coal prices). Average realization at ~Rs. 5.32/ unit continues to be high (PSA at these rates exists with Andhra Pradesh SEB till May 2014). While cost of generation (fuel + conversion charges) is at ~Rs. 4.5/ unit. Company’s debtor position currently stands at Rs. 21.42bn, down from Rs. 25.81 in Mar’2012. Company expects to collect all the overdues from TN by 3QFY14 (current dues from Tamil Nadu stands at ~Rs. 2.7bn) while it maintains that UP will take longer to clear its dues (company was able to get ~Rs. 4.4bn in the quarter from UP). Valuation Discussion Power volumes in the trading business will witness an exponential growth in FY14E and FY15E - growing by 14% in FY14E and 29% in FY15E, from 24bn in FY12 units to 42bn units. This will be primarily on the back of a spurt in PPA based volumes (from 4.7bn units in FY12 to 19bn in FY15E) – a 59% CAGR in FY12-15E. Company has a stock of more than >10GW of PPA projects which are under construction (existing PPA projects from which the Company is buying power amounts to ~2.1GW). Company expects ~2GW of these capacities to be commissioned in FY14E, ~6GW in FY15E and ~2.5GW in FY16E. The growth potential in trading volumes due to this surge in PPA capacities will result in a EBITDA CAGR of 17% for FY12-15E. We view the tolling business as risky though it is contributing to >50% of the current profits. Favorable merchant rates in Andhra Pradesh (>Rs. 5/ unit) and low imported coal prices (~US$90/ tonne) at present can quickly change in the coming years. Though, currently, the company is making a robust ~70 paisa net margin per unit at these rates. We like the growth potential in EBITDA of the trading business (from ~Rs. 1.4bn in FY12 to ~Rs. 2.3bn in FY15E) and the debt free balance sheet. We value the trading business at 6x FY15 EBITDA, the tolling business at investment value and PTC Financials on its current marketcap giving 30% holdco discount, yielding a fair value of Rs. 84/ share. Maintain BUY due to the above mentioned reasons with a TP of Rs. 84/ share.

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