Buy PTC India - Motilal Oswal

• Mkt Cap USD0.7b
• CMP Rs108
• Buy

- 1QFY11 operational performance above estimates, driven by higher volumes/margins: During 1QFY11, PTC India reported higher than expected performance with reported EBITDA of Rs269m, vs est of Rs157m. Other income at Rs147m, was lower than est of Rs200m and tax burden at 31% was higher than est of 20%. Management indicated that decline in other income is due to NIL capital gains on sale of investments largely FMPs (vs Rs140m in 1QFY10), which are tax free given indexation benefits. Adjusted net profit stood at Rs284m, down 22% YoY.

- Robust operational performance: Total traded volumes during 1QFY11 stood at 5.7BUs (up 37% YoY). 1QFY11 volumes were driven by: 2BUs of long term trades (vs 1.5BUs YoY), and pick up in surplus power trading by captive units (at 1.2BUs, vs 270MUs YoY). Long term (LT) power portfolio for PTC currently comprises of 1,982MW, and management expects to add 470MW of projects in FY11 and ~4GW in FY12. Gross trading margin for 1QFY11 stood at Paise5.62/unit, vs Ps.5.07/unit in 4QFY10 and Ps.5.21/unit in 1QFY10. During 1QFY11, PTC availed prompt payment rebate and surcharge on late payment from SEBs amounting to Rs37m, adjusted for which margin stood at Ps.5/unit in 1QFY11, vs Ps.3.8/unit in FY10 and Ps.3.7/unit in FY09.

- PTC Financial Services (PFS) and PTC Energy (PEL) witnessing business traction: As at June-10, total debt sanction by PFS stood at Rs19.5b (vs Rs17b in Mar-10) and has disbursed Rs4.8b (vs Rs3.1b as at Mar-10). Total equity sanctions till date stands at Rs5b and disbursement stood at Rs4b (up from Rs3.8b in Mar-10). In 1QFY11, the company reported PBT of Rs82m, down from Rs90m YoY largely due to the accelerated depreciation of Rs15m on account of investment in wind mills. PEL has initiated the process to launch power sector fund in JV with Ashmore and the size is expected at USD300-400m.

- Valuation and view: We expect PTC to report net profit of Rs1.24b in FY11E (up 32% YoY) and Rs1.64b in FY12E (up 33% YoY). The stock trades at reported PER of 25.6x FY11E and 19.3x FY12E. Maintain Buy.

Source : Equity Bulls

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