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Spark Capital: PTC India - 1QFY14 Results Review




Spark Capital Advisors(India) Private Limited


07 Aug 2013





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Volumes jump; downside protected after the tolling segment restructuring; maintain “Buy” PTC reported steady set of numbers for the quarter with revenues of Rs. 27.70bn and net-profits of Rs. 296mn, a yoy increase of 39% in revenues and 17% in net-profits respectively. Company also witnessed a 28% yoy growth in number of units traded at ~8,418mn units of electricity (including 343mn units from the erstwhile tolling segment). Company converted its tolling arrangement (for 350MW with Madhucon and Meenakshi) into a long-term trading arrangement, thereby eliminating its exposure to international coal prices/ forex rates/ merchant prices. According to the new structure Company will only off take power generated from this 350MW and will sell it at the best price possible (currently has 1 year PPA with APDISCOM at ~Rs. 5.5/ unit). Company would make a margin of 2% on the power sold at upto Rs. 4.6/ unit (can vary with changes in coal cost and forex rate); while it would share 30% of the realization over and above Rs. 4.6/ unit along with making 2% margin in case the realization is >Rs. 4.6/ unit. This arrangement, while eliminating the risks involved foregoes large upside that was possible before the restructuring. Nevertheless, Company reported better overall margins ~4.02paise/ unit in 1QFY14 (vs. ~3.62paise in 4QFY13) as it realized ~20.5paise/ unit on the units from Madhucon’s Simhapuri traded as per the new arrangement. Company collected ~Rs. 1.2bn of the outstanding dues from Tamil Nadu and ~Rs. 50mn from Uttar Pradesh in the quarter. Uncollected dues from TN stands at ~Rs. 2.5bn while it is ~Rs. 7.8bn from UP. Valuation Discussion Power volumes in the trading business would witness an exponential growth in FY14E and FY15E - growing by 21% in FY14E and 28% in FY15E, from 28.60bn in FY13 units to ~44.40bn in FY15E. This will be primarily on the back of a spurt in PPA based volumes (from 3.77bn units in FY13 to ~25.76bn in FY15E) – a 98% CAGR in FY13-15E. 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 ~1.47GW of these capacities to be commissioned in FY14E, ~6.57GW in FY15E and ~2.51GW in FY16E. The growth potential in trading volumes due to this surge in PPA capacities will result in a EBITDA CAGR of 15% for FY13-15E. We like this growth potential in EBITDA of the trading business (which is expected to grow from ~Rs. 1.7bn in FY13 to ~Rs. 2.3bn in FY15E) and the debt free balance sheet. Collection of all the dues from TN by the end of FY14 would be an added near term positive. We value the trading business at 5x FY15 EBITDA and PTC Financials on its current marketcap giving 30% holdco discount, yielding a new fair value of Rs. 71/ share (Rs. 84/ share earlier). Maintain “BUY due to the above mentioned reasons with a TP of Rs. 71/ share.

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