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November 18, 2013

Index
 Stock Update >> PTC India

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investors eye

stock update

PTC India

Reco: Buy

Stock Update

Positive triggers unfolding; Buy with revised price target of Rs70


Result highlights

Company details
Price target:

Rs70

Market cap:

Rs1,727 cr

52 week high/low:

Rs81/35

NSE volume:
(no. of shares)

8.9 lakh

BSE code:

532524

NSE code:

PTC

Sharekhan code:

PTC

Free float:
(no. of shares)

24.8 cr

Shareholding pattern
Promoters
16%

Others
22%

CMP: Rs58

FII
16%

 Q2 results much ahead of expectations on better margin and hefty dividend


income: PTC India (PTC) reported a stellar set of numbers for Q2FY2014
recording a net profit growth of 39% year on year (YoY) and 109% quarter on
quarter (QoQ) which is much ahead of our as well as the Streets expectations.
A year-on-year (Y-o-Y) comparison is not fair as the company has shifted part of
its business from the tolling model to the long-term model since Q1FY2014.
Though the net sales of Rs3,140 crore were in line with our estimate, the
operating profit of Rs68 crore was significantly above our estimate of Rs44
crore due to a better trading margin earned (7 paise per unit against our estimate
of 6 paise per unit) and lower than estimated other expenses (around Rs9 crore
lower). Below the operating level, it reported other income of Rs19 crore,
which is better than our estimate, as the company received dividend to the
tune of Rs13.5 crore from PTC Financial Services (PTC Financial; a subsidiary)
in this quarter. Consequently, the profit after tax (PAT) was Rs62 crore against
our estimate of Rs35 crore.
 Robust H1FY2014 performance; revised upward annual estimates: In
H1FY2014, the net sales grew by 24% YoY to Rs5,911 crore, backed by a 20%
volume growth. The benefit percolated to the operating level and the operating
Results

Rs cr

Particulars
DII
46%

Q2
FY14

Q2
FY13

YoY
%

Q1
FY14

10,820

9,428

15

8,418

2.9

3.0

-2

3.3

Total income

3,140

2,793

Purchase

3,064

2,593

77
3,072

Units traded in mn units


Blended realisation in Rs /unit

Price chart
85
80
75
70
65
60
55
50
45
40
35
30

Trading profit
Total expenditure
Operating profit

Nov-13

Aug-13

May-13

Feb-13

Nov-12

(%)

1m

3m

6m 12m

4.9

26.6

-2.6 -13.5

Relative
to Sensex

6.5

20.3

-6.2 -21.3

YoY
%

29 19,238 15,989

20

3.1

3.0

12 2,770

13 5,911 4,780

24

18

2,704

13

5,768

4,478

29

200

-62

66

16

143

302

-53

2,736

12

2,736

12

5,809

4,692

24

68

57

19

34

99

102

89

15

6.2

205

8.1

133

27.0

8.3

226

Interest

0.3

0.4

-17

0.4

-7

0.7

0.5

34

Depreciation

1.1

1.0

1.1

2.1

2.0

85

62

38

41

110

126

95

33

PBT
Tax

24

17

36

11

106

35

27

29

Adjusted PAT

62

45

39

29

111

91

68

35

Extraordinary items

(0)

NA

NA

(0)

-386

Prior period adjustments

NA

NA

-86

62

45

39

30

109

92

70

Reported profit after EO item


Absolute

H1
FY13

-12

H1
FY14

18.9

Other income

Price performance

QoQ
%

Ratios (%)

bps

bps

31
bps

Operating margin

2.2

2.0

11.7

1.2

93.2

1.7

PAT margin

2.0

1.6

37.3

1.1

91.1

1.5

27.5

27.9

(40.8)

28.0 (45.0)

27.7

28.7 (98.4)

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Tax rate

Sharekhan

November 18, 2013

1.9 (13.4)
1.4

13.1

investors eye

stock update

the trading realisation per unit. However, the blended


realisation was in line with our estimate.

profit grew by 15% YoY to Rs102 crore in H1FY2014.


Further, supported by a significant jump in the other
income (the dividend income received from the
subsidiary) the adjusted PAT grew by 35% YoY to Rs91
crore in H1FY2014. In view of the performance in the
first half, we have fine-tuned our sales estimates for
FY2014 and FY2015 but revised upward our net profit
estimates for FY2014 and FY2015 by 17% and 6%
respectively to factor in the lower other expenses and
higher other income. The receipt of significant
receivables from the Uttar Pradesh State Electricity
Board (UPSEB) would result in a significant jump in
the other income. Our revised PAT estimates for FY2014
and FY2015 stand at Rs151 crore and Rs166 crore
respectively.

Volume traded in MU and Y-o-Y growth


13,000
11,000
9,000

Total V olumes Traded (MU)

 Viewpositive triggers unfolding; maintain Buy:


After the restructuring of the state electricity boards
(SEBs) large funds stuck with the SEBs are coming back,
the trading volume is looking up and the long-term
volume (better margin) is likely to move up too.
Moreover, the management seems to be more confident
of achieving a profitable growth now and aims to
improve the returns ratio from the current level in
the next two years. Stringent risk management and a
better balance sheet should be positive for the
company. Hence, we remain positive on the stock and
retain our Buy rating on it. Based on the upward
revision in our net profit estimates, we have raised
our sum-of-the-parts (SOTP)-based price target to Rs70
per share from Rs65 earlier.

Q2FY14 10,820

Q1FY14 8,418

Q4FY13 6,732

Q3FY13 5,871

Q2FY13 9,428

Q1FY13 6,566

Q4FY12 4,379

Q3FY12 4,564

3,000

Q2FY12 8,655

5,000

Q1FY12 6,720

7,000

60%
50%
40%
30%
20%
10%
0%
-10%
-20%
-30%

Y oy Change

Operating profit benefited on lower other expenses,


leading to healthy margin expansion
On a Y-o-Y basis, due to a change in the business mix (the
tolling business converted into a long-term business) the
operating expenses were not accounted for in Q2FY2014
as had been accounted to the tolling operations last year.
Hence, on a Y-o-Y basis the operating profit figures are
not comparable. Nevertheless, the operating profit grew
by 19% YoY in Q2FY2014. On a sequential basis, the margin
improved largely on account of lower other expenses and
a better volume. Consequently, the operating profit more
than doubled QoQ to Rs68 crore. The operating profit per
unit stood at 6 paise as normal trading volume earns
around 4 paise per unit and the long-term volume would
have earned around 30 paise per unit in Q2FY2014.

Decent top line growth with uptick in volume

Gross trading margin (Rs/unit)

For Q2FY2014 PTC reported a top line of Rs3,140 crore,


which is a 12-13% growth on both Y-o-Y and quarter-onquarter (Q-o-Q) bases, and is also in line with our estimate.
The healthy growth in the top line was mainly led by a
jump in the volume, which grew by 15% YoY and 29% QoQ
to 10.8BU in Q2FY2014. However, the blended realisation
per unit stood at Rs2.9 per unit, which is a decline of 2%
YoY and 12% QoQ. The blended realisation declined
sequentially due to the seasonality effect. During the
monsoon, usually hydel power volume improves (please
note that a significant portion of the hydel power produced
by PTC is being traded by the company). Hence, a jump
in the hydel power volume would have adversely affected

0.4
0.3
0.3
0.2
0.2
0.1
0.1
Q2FY14

Q1FY14

Q4FY13

Q3FY13

Q2FY13

Q1FY13

Q4FY12

Q3FY12

Q2FY12

Q1FY12

Gross trading margin Rs per unit

SOTP valuation
Company
Core power trading business
PTC Financial Services

Stake (%)
100
60

Multiple

Value (Rs crore)

Value Rs/share

1652

56

422

14

12x FY2015 core earnings


0.5xBV (YTD)

SOTP

70
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November 18, 2013

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Operating profit margin (%)

management expects to settle the same by the end of


FY2014. The release of the pending receivable from these
two SEBs will be highly positive for the company as it will
significantly ease the pressure on its balance sheet and
help it to improve its returns ratio to some extent
in future.

2.5%
2.3%
2.0%
1.8%
1.5%
1.3%

Enhanced risk management system to prevent such


events in future

Q2FY14

Q1FY14

Q4FY13

Q3FY13

Q2FY13

Q1FY13

Q4FY12

Q3FY12

Q2FY12

Q1FY12

1.0%

After learning from bad experience in the past with long


pending sizeable receivables, the company has enhanced its
focus on its risk management system. The appointment of a
chief risk officer, adoption of a stringent receivable policy
and its close monitoring are indication of the same. We believe
this would help the company to avoid such issues in future.

Operating margin (%)

Higher other income dazzled bottom line growth


During Q2FY2014, the net profit grew by 39% YoY and 109%
QoQ to Rs62 crore, backed by a significant jump in the
other income due to a dividend income of Rs13.5 crore
received from its subsidiary, PTC Financial. Nevertheless,
the strong operational performance also supported the
healthy growth in the bottom line and the net profit was
much ahead of our expectation.

Cross-border and retail volumes are next growth triggers


PTC has entered into long-term cross-border arrangement
with Bangladesh for supply of 250MW electricity and the
supply should start from December 1, 2013. Moreover, the
management of PTC sees high growth prospects in providing
power to consumers of load greater than one megawatt
(in the retail business), the open access customers.
Currently, PTC has more than 250 open access customers
across the country and expects the number to move up in
the coming days. During Q2FY2014, around 500MU were
contributed by the retail customers. The management
believes that this segment is in incubating phase and is
likely to witness growth. Hence, it aims to increase its
presence by taking the early mover advantage. Moreover,
this segment is expected to have a relatively better margin.
Even in case of the cross-border business with Bangladesh,
PTC is expected to earn a better margin in the range of 78 paise per unit against 4 paisa per unit in the normal
domestic wholesale trading business.

Robust H1FY2014 performance, other income jumped


In H1FY2014, the net sales grew by 24% YoY to Rs5,911
crore, backed by a 20% growth in the volume, which stood
at 19.2BU. In the meantime, the blended realisation grew
by 3% YoY to Rs3.07 per unit. The operating profit grew
by 15% YoY to Rs102 crore and the OPM stood at 1.7% at
the end of H1FY2014. Below the operating line, the PAT
showed a strong growth of 35% YoY to Rs91 crore, mainly
due to a significant jump in the other income (due to a
dividend income received from the subsidiary) during the
first half of this fiscal.
Key conference call highlights
Received large pending receivables from UPSEB;
significant easing of balance sheet

Volumes from Meenakshi and Simhapuri plants could


go up in future

During Q2FY2014, PTC received the payment for long


pending receivables worth Rs778 crore (gross amount)
from the UPSEB. Adjusting payable, net realisation was
at Rs615 crore. Further, during the post-result conference
call, the management indicated that the surcharge from
the UPSEB could be to the tune of Rs70 crore. However,
the surcharge amount is under negotiation currently.
Though the pending receivables from the Tamil Nadu SEB
has remained unchanged at Rs250 crore since the last
two quarters due to some commercial dispute, but the

During Q2FY2014, the volume from both the Meenakashi


and the Simhapuri plant clubbed together stood at around
370MU, which indicates a low plant load factor. However,
the management shared that there was a scheduled plant
shutdown for 15 days in Simhapuri while the Meenakshi
plant got commissioned on May 30, 2013 only and hence
has yet to stabilise. We believe that after the stabilisation
of the Meenakshi plant, the volume may go up from the
facility, which usually earns significantly higher margin
compared with the core trading business.

Sharekhan

November 18, 2013

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investors eye

stock update

Viewpositive triggers unfolding; maintain Buy

Valuations

After the restructuring of the state electricity boards


(SEBs) large funds stuck with the SEBs are coming back,
the trading volume is looking up and the long-term volume
(better margin) is likely to move up too. Moreover, the
management seems to be more confident of achieving a
profitable growth now and aims to improve the returns
ratio from the current level in the next two years.
Stringent risk management and a better balance sheet
should be positive for the company. Hence, we remain
positive on the stock and retain our Buy rating on it. Based
on the upward revision in our net profit estimates, we
have raised our sum-of-the-parts (SOTP)-based price
target to Rs70 per share from Rs65 earlier.

Particulars

FY12

FY13

FY14E

FY15E

Net sales (Rs cr)

7,650

8,856

10,677

12,096

Operating Profit (Rs cr)

145

169

181

198

Net profit (Rs cr)

120

127

151

166

EPS (Rs)

4.1

4.3

5.1

5.6

-13.2

5.7

18.9

9.9

PER (x)

YoY growth %

14.4

13.6

11.4

10.4

P/BV (x)

0.8

0.7

0.7

0.7

EV/EBIDTA (x)

8.6

7.6

4.3

4.1

RoCE (%)

8.5

7.6

8.7

9.2

RoE (%)

5.3

5.5

6.3

6.6

Dividend yield (%)

2.6

2.7

3.1

3.4

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.

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November 18, 2013

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