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Research
PTC India - A fair trade - Elara Capital
Posted On : 2013-03-08 01:23:38( TIMEZONE : IST )
Balance sheet finally shows some relief!
PTC has net outstanding dues from both TNEB and UPPCL to the tune of ~ INR8000mn. However, it does not have any obligation towards its power suppliers as all their payments were made in FY12 through a short term loan. With the recently approved debt restructuring proposal for SEBs by the Cabinet and TNEB also repaying its dues, we expect PTC's balance sheet to slowly regain its strength. The cash position stands at INR2.05bn vis-Ã -vis INR500mn in FY12 end. We expect this to balloon to nearly INR7bn by FY15E.
General elections in 2014 to boost revenues
We expect a revenue spurt at PTC in the run up to the general elections. With the increase in statutory cap on short term trading margins in FY11 from INR0.04/unit to INR0.07/unit, we expect healthy revenue growth of ~16%CAGR over FY12- FY15E.
Tolling arrangements expected to drive profitability
Given the asset light nature of the business and high margin potential (more than 10x that of its usual trading business margins), we expect the tolling entity to contribute not less than 30% to the bottom line by FY14E. This however brings in 'direct' fuel exposure to PTC which it has escaped all these years.
PTC India Financials (PFS) – A dark horse
Having 60% interest in PFS, PTC India stands to gain from value appreciation in the subsidiary. PFS has been reporting phenomenal numbers with nearly 8.75% NIMs in Q2FY13 and NIL NPAs. The NBFC whose loan book is expected to witness manifold growth (60% CAGR of over FY12- FY15E), is in a sweet spot for imminent re-rating.
Valuation
We expect the ROEs to improve progressively from ~6% in FY12 to ~ 10% by FY15E. We have employed a SOTP based valuation matrix to value PTC India. We have valued the standalone business on P/BV basis. With receivables scenario improving, we expect the company to return to its FY09 cash position of ~INR 7bn by FY15E. The tolling business, as witnessed in Q2 FY13, is expected to improve the operating margins and thereby the ROE profile of the company as margins in tolling business is ~10x that of the core trading business. For PFS, we have assigned a fair value of INR1.6bn and have assigned a holding company discount of 30%.
