PTC India - Core business remains strong - ICICI Securities

Trading volumes increased by 35.6% YoY in Q4FY21 to 16.3BU resulting in 92.6% YoY increase in PTC India's (PTC) adj. PAT (adjusted for provisions of Rs0.6bn) to Rs1.2bn. The increase in volumes is primarily attributed to 88% jump in short-term volumes to 9.2BU, while medium and long-term volumes were flat at 7.1BU. However, trading margins shrunk 22% to 3.3p/kW due to two factors: 1) higher short-term transactions, and 2) withdrawal of one-off gains from Bangladesh cross-border trades booked in prior quarters. Higher LPS from discoms resulted in 151% YoY increase in surcharge to Rs1.1bn, although rebates were 15% lower YoY at Rs260mn. PTC is in the final stages of signing PPA/PSA for 1,070MW out of the 2,500MW Pilot-II 3-year tender. This, as well as power demand improvement, will help PTC's high volume growth momentum to continue. Rs7.5/sh total dividend took the payout to 54%. Maintain BUY.

- Higher short-term volumes push overall volumes: For Q4FY21, revenues were up 10.4% YoY at Rs35.9bn, while EBITDA was up 70% YoY at Rs1.7bn. Reported PAT was at Rs633mn, down 1.3% YoY, adj. PAT (adj. for impairments) rose 92.6% to Rs1.2bn. Factors impacting profit for the quarter: 1) 35.6% YoY growth in volumes at 16.3BU buoyed by 88% increase in ST volumes at 9.2BU, 2) rebate / surcharge at Rs260mn / Rs1,137mn were down 15% / up 151% respectively, 3) impairment provision of Rs500mn taken for PEL assets and Rs103mn for capital advance, 4) core margins were 22% lower at 3.3p/kWh vs 4.2p/kWh mainly due to higher proportion of ST volumes and withdrawal of one-off gains booked in earlier quarters for Bangladesh cross-border trades. Debtors declined further to Rs58.4bn at FY21-end vs Rs80.5bn at H1FY21-end while creditors declined to Rs36.2bn from Rs64.6bn (both lower than FY20 levels).

- 21% volume growth in FY21: In FY21, EBITDA / PAT were at Rs6.3bn / Rs4.1bn, up 44% / 28% YoY (adj. PAT up 47% at Rs4.7bn). Volumes grew 21% YoY to 80BU as PTC clocked 39% YoY volume increase in H2FY21 while margins were at 4.2p/kWh.

- Higher focus on consulting with approval of acquisition of IL&FS' energy consulting business: PTC's board approved acquisition of the energy consulting business of IL&FS Energy Development Company through NCLT for a small consideration, which will provide 15% IRR post acquisition. The acquired company is involved in four areas of energy consulting, viz. energy efficiency, distribution advisory, waste-to-energy conversion and environment-related efficiency. It has pending revenues (from orders in hand) of Rs1bn over the next 4 years on which it will earn 40-50% margins. It currently employs 15-20 people. PTC's own consultancy income grew 50% YoY in Q4FY21 to Rs91mn and 20% YoY in FY21 to Rs294mn. Orderbook is at Rs2bn. PTC aims to diversify into non-regulated businesses and gain synergies from the said acquisition, which can help propel its consulting business profitability.

- Final dividend of Rs5.5/sh for FY21: PTC's FY21 total dividend of Rs7.5/sh translates into a payout of 54%. High payout is expected to continue as the company's stated dividend policy declared in FY20 is of payout of at least 50% of annual profits.

- Sale of non-core businesses remains under consideration, but is delayed. Company has however mentioned that it is still pursuing with potential buyers.

- Valuation: We maintain BUY on PTC with an SoTP-based target price of Rs135/share. Divestment of non-core holdings will unlock value and rerate the stock price meaningfully.

Shares of PTC INDIA LTD. was last trading in BSE at Rs.103.4 as compared to the previous close of Rs. 102.6. The total number of shares traded during the day was 101589 in over 1055 trades.

The stock hit an intraday high of Rs. 105 and intraday low of 102.5. The net turnover during the day was Rs. 10554591.

Source : Equity Bulls

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