Buy PTC India; target of Rs 98: Sharekhan

“In FY2011, PTC India (PTC)’s revenues grew by 16% on a year-on-year (Y-o-Y) basis, primarily driven by a 34% increase in the volumes of electricity traded. However, the realisation price declined by 5% over the previous year. Power units traded via the power exchange increased multifold to 3,940 million units in FY2011 while long term volume also reported a robust 47% yearly growth. In spite of a fall in other income (due to low profit booking on investment), the overall net profit jumped by 47% year on year (YoY) owing to an expansion in the trading margin per unit (trading margin stood at 4.4 paise per unit in FY2011 compared to 3.6 paise per unit in FY2010).”

“In FY2008, the company raised capital through a qualified institutional placement (QIP) issue of shares amounting to Rs496.2 crore to be used in several strategic investments and in maintaining a healthy working capital cycle. This led to a substantial rise in the equity base and deterioration in return ratios. In FY2011, the rise in the core profit after tax (PAT; from trading operation) improved the return ratios; but they are still far below the returns enjoyed during the pre QIP period. However, in the coming years we are expecting the return ratios to improve, backed by a rise in trading volume and prevalence of a stable margin regime. The working capital cycle of the company got further stressed in FY2011 as it increased to 17 days from 8 days in FY2010 owing to a delay in payments by the State Electricity Board (SEB)s mostly of Tamil Nadu and Karnataka, which have been incurring operational losses. In FY2011, the company had recorded Rs977.9 crore as debtors, of which approximately.”

“While the volumes of PTC continued to register stupendous growth in Q1FY2012, its working capital requirement is hugely dependent on the healthy payment cycle from its SEB clients. PTC penalises its clients for delays in growth driven stocks including PTC. Hence, we are downgrading our target multiple to 12x from the earlier 15x on FY2012 standalone earnings estimates. Also, we are valuing its PEL business at 1x book value. Overall, our sum of the parts (SOTP) based target price stands revised to Rs98. However, the current valuation at less than 1x FY2011 book value remains attractive and hence we maintain our Buy rating on the stock,” says Sharekhan research report.

Shares held by Insurance Companies

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.