PTC India Research Reports By ICICI-Direct & HDFC Sec

Research report by ICICI-Direct

Overall volumes to grow at CAGR of 15% over FY16-18E

PTC is India’s leading power trading company with a market share of 30% in the trading business. Its trading volumes and PAT have grown at a CAGR of 15.7% and 15.3% to Rs 3,714 crore and Rs 202.3 crore, respectively, over FY10-15. The company operates at a very small margin of 4–7 paise per unit. This exposes the company to the risk of receivables for its short term trade (currently accounts for 50% of its total trading volume), thus impacting its working capital cycle. While the company has committed to long term PPA of over ~ 11 GW capacities, it has signed a sale agreement (PSA) for only ~7.4 GW till FY15. PTC aims to bring down this gap and increase its long term PPA share in total volumes from the current 39% to over 45% by FY17E-FY18E, which would provide stable cash flow and, thus, minimise the risk of growing receivables. Going ahead, we have built in volume estimates of 4940 crore units and 5644 crore units in FY17E and FY18E, respectively. In terms of segmental break up, long term volumes are expected to grow at a CAGR of 24% over FY16-FY18E. With commissioning of PPAs in FY18E, long term volumes are expected to reach 2522 crore units from 1640 crore units in FY16.

Share of long term volumes to reach >45% by FY18E

Under the long term contract, PTC India expects total cumulative capacity of 5200 MW of capacity to get operationalised between FY17E and FY19E. The commissioning will be front loaded as FY17E and FY18E will see 2400 MW and 2180 MW of capacity coming on stream, respectively. The traction of long term capacity gaining traction is visible from FY16E itself as long term volumes formed ~39% of overall volumes while the share of the same was at 43% in Q3FY17.

Scaling up renewables exposure via PTC Energy

Out of total commitment of Rs 600 crore in PTC Energy, the company has invested Rs 581 crore as of 9MFY17. The subsidiary will spend the same to commission wind power capacity to the tune of 250 MW by FY17E, out of this 50 MW has been commissioned in FY16. However, if the returns from the projects are mediocre it would again impact return ratios negatively

Research report by HDFC Sec

Investment Rationale:

• Power reforms and economic growth leading to higher trading volumes,
• Capacity commissioning over the next 2 years,
• Change in business mix to result in higher margins,
• Foray into renewable power generation,
• Robust growth in subsidiary – PFS,

Concerns:

• Slowdown in economy resulting in lower demand for power trading
• Increasing competition from power exchanges
• Deteriorating asset quality in subsidiary (PFS).
• Delay in capacity tie-up for onward sale
• High debtors compared to creditors
• Investments in subsidiaries and current investments pulling down return ratios

The commissioning of new projects by the suppliers of PTC India in FY18 would drive volume growth for the company. The management expects contribution from long term trade to increase from 40% in FY15 to ~50% by FY17E and more beyond that resulting in better margins as LT trade margins are ~7 paise/unit as compared to ~4 paise/unit for ST trade.

PTC is expected to report robust sales growth of 13.8% CAGR over FY16-FY18E driven mainly by increasing volume. Further, PTC is setting up 350 MW wind power + solar power project project which is likely to earn 16% post-tax RoE as compared to 6-7% earned by the company on its regular trading business. Increasing business from Railways and Teesta Urja project going on stream in Q4FY17 are some additional triggers.