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| PTC India: Opportunity in despair | |
| Priya Kansara Pandya / October 15, 2011, 0:36 IST | |
The company’s performance is estimated to improve sharply in 2012-13.
 Amid despair surrounding the power sector due to execution hurdles and operational risks, there is also an opportunity. And, this opportunity is in the form of PTC India, both from an immediate as well as medium-term perspective. While most utility stocks have disappointed investors, analysts say PTC India, the country’s largest power trading player, has the potential to deliver good returns from the present level of Rs 70 to an average price target of Rs 113.
Thanks to the recent shortage of fuels like coal and gas, demand for merchant power has risen. In the medium-term, the slippages in new power capacity addition should most likely result in a power deficit situation in the country, leading to an increase in power trading activity. These events augur well for PTC India, say analysts.
Additionally, the Karcham Wangtu (700 Mw) and tolling projects (360 Mw) under its 100 per cent subsidiary, PTC Energy, are expected to be commissioned by the end of FY12, the full benefits of which will be felt in FY13. PTC Energy is also expected to start earning higher coal trading margin from FY12 as the volume of 0.2 million tonnes in the June 2011 quarter is expected to jump seven fold (1.4 million tonnes) in FY12 and further to 2.4 million tonnes in FY13. Analysts, thus, expect PTC’s EPS to grow between 8-14 per cent in FY12 and 28-42 per cent in FY13.
On the flip side, payment delays from Tamil Nadu State Electricity Board has led to higher requirement of working capital and a subsequent rise in interest cost, which is a key monitorable for performance in the September quarter. The company is expected to recover the remaining Rs 500 crore (out of Rs 700 crore) before September-end. Impact of competition in the short-term power trading market (still a significant contributor to the top line) is also a risk to the company’s market leadership (share of 40 per cent).
In the long run, PTC’s power trading volume (24 billion kWH in FY11) is expected to more than double in the next four years primarily supported by long-term power purchase agreements (PPAs). However, the catch lies in filling the gap between the long-term PPAs worth 15,000 Mw and power sales agreements of 5,400 Mw, which PTC plans to do within next three years. However, this augurs well for margins as long-term contracts are more profitable.
PTC India’s stock has declined 12 per cent in the last three months and 50 per cent in the past one year. It is trading at 0.9 times its FY13 estimated book value (five-year average is 1.35 times) and looks attractive given the limited risk in the business model and expected improvement in returns. The cash and investments worth Rs 1,740 crore on its books as on June 30, which though can cap returns, also add to the comfort.
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