PTC India Limited - Higher trading/tolling volumes to drive earnings growth - Antique

4Q volume growth beats estimates; up 54% YoY

Revenue for the quarter increased 52.3% YoY due to 53.7% YoY increase in trading volumes despite 3% YoY decline in power traded prices. Volumes increased from 4,380m kWh in 4QFY12 to 6,732m kWh in 4QFY13. EBITDA for the quarter grew by 58% YoY mainly due to contribution from tolling projects. Volume growth has been aided by 25% YoY higher long term volumes, up from 1,180m kWh in 4QFY12 to 1,475m kWh in 4QFY13 and 120% YoY growth in IEX volumes at 1,543m kWh.

Margins for core business stable despite higher IEX volumes

The gross trading margins were at 29paise/kWh (9paise/kWh in 4QFY12) including margins of tolling projects which are higher than the core trading margins of 4-7paise. The net trading margins, adjusted for the rebates/surcharge (INR128m) and power tolling profits (INR250m) are down 6% QoQ, at 3.6paise/kWh. The margins has reduced due to 120% higher IEX volumes which earns a margin of 2-2.5paise despite 25% YoY growth in long term volumes which earns 5-7paise margins.

Tolling volumes and margins to provide growth in FY14/15e

PTC sold 304MUs in 4QFY13 (vs. 227MUs in 3QFY13) under tolling arrangement. The coal cost was INR805m (INR 2.65/unit in 4QFY13 vs. INR2.9/unit in 3QFY13) and fixed cost was INR563m INR1.85/unit in 4QFY13 vs. INR1.66/unit in 3QFY13). The company earned tolling EBITDA of INR252m in 4QFY13 vs. INR135m in 3QFY13. We have assumed power tolling margins of INR 1/unit for FY14 and from FY15 onwards assumed margin of 38paise/unit. Also the tolling unit of Meenakshi (150MW) has been synchronized and will be commissioned in 1HFY14 which will drive tolling volume growth.

Cash position improves; expect recovery from TN and UP in FY14

Debtors decreased from INR28bn at Dec.12 end to INR21.5bn at March end and have back to back creditors of INR11bn. INR 3.7bn was due from Tamil Nadu and INR 7.7bn from Uttar Pradesh, of which TN repaid INR1bn in April'13, hence exposure of PTC's balance sheet was INR2.7bn from TN and INR4bn from UP. We believe as the FRP package (SEB restructuring) is to be accepted by the states by July'13, the balance outstanding will be recovered from both the states by then. This will help the cash in hand to increase to INR11bn by FY14-end (from the current balance of INR4.7bn).

Valuations

We value PTC on an SOTP basis assigning 8x P/E to FY15e trading and tolling earnings, value investments in PFS at 25% discount to CMP and FY14e cash in hand at 50% discount.

Source : Equity Bulls

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