Posted good operating margins despite lower vols: PTC India

Latha: What happened, why such a fall? I understand there are some extraordinaries but even then this is a steep fall in profit and practically no growth in revenues?

A: The company has reported a net profit of Rs 6.63 crore in Q3. You would recall that the net profits in Q3 FY14 were high because of a surcharge of Rs 72 crore, which we have received from Uttar Pradesh in Q3 for long outstanding dues.

Also, the company used to divest part of its long-term investment in Teesta Urja Ltd (TUL) so government of Sikkim acquired 51 percent. What had happened is that there were certain issues and the project was not coming up strongly, there were delays and further delays. So we all had to sit together and there are international investors Morgan Stanley, Goldman Sachs, all of us huddled together and we realised that if we make it a government company as of now with 91 percent work complete, it is only last 9 percent. So it was the way and we decided to divest proportionately so that becomes the government of Sikkim project. So that we are able to complete that project. So the share of TUL had to be valued which came at below par value and therefore to transfer only that amount of share from PTC, which will be a small amount, there will be a loss of Rs 6.5 crore for which provision was made in the account.

But also, on the most conservative basis whatever small share which we are going to transact there is a loss of Rs 6.52 crore going to come but we have all the other shares also, we have currently valued at the same price and therefore we have to make a large provision of Rs 33 crore. Once the project is completed, this valuation is going to be revised which can happen within one year only.

Second thing is the trading volumes during the quarter obviously are 6 percent less, USD 7.7 billion as compared to USD 8.2 billion. However, for the nine months period ending 2014, trading volumes are higher by 12 percent to 30.8 million units compared to 27.4 million units. Apparent decline is a result of flat growth in the market for the short-term over the counter as well as exchange traded power. This is a functional dynamics of the distribution companies (DISCOMs) and generation side issues, that are in flux as all of us know due to changes in the short run.

Second most important thing is the transmission constraint is coming a big way especially after the great collapse, which had happened in 2012, so I will give you a figure that despite a higher contracted quantum for trade, 61 percent of contracted power could not slow because of transmission constraints in the network in Q3 FY15. This is also we know a short-term phenomenon but then this is as it is today. These are the things overall.

Latha: Give us a bit more of a background, is it that DISCOMs don’t have the money to buy, is it that power companies don’t have the power to sell and then you spoke about transmission, is that a power grid issue?

A: Yes, it is a larger issue because there is a huge congestion, everyone knows about the power from the rest of the country flowing to south but other than that there is a congestion on the Western region to northern region moving power. Even from Eastern region to northern region moving power. So it is a constraint which is a temporary one. We know that over next one year or so these things will be much better than as it is today. Second thing yes, there is no doubt distribution utilities, the sub-distribution reformation, the sub-transmission reformation have started but as on today, the constraint of the money is a big challenge before the utility.

Latha: These don’t look like they will be resolved even this quarter or next quarter, the problems that you are talking about so what volumes do you see this quarter and next?

A: It is going to be a short-term market as PTC has always predicted it is going to be always highly volatile and this is one of the highest volatility, which we are seeing, it is not only the fall in volumes and it is not only in the short-term bilateral but also exchanges that are also seeing a flatter growth now but we believe that our long-term will start kicking up from next year and as we have predicted, in next two-three years time, we are going to see much larger volumes and our intake from long-term is going to be much more robust.

Reema: Could you tell us what the trading margins were for the company this quarter and on this subject of volumes, do you maintain your guidance of doubling your volumes by FY17 or because of these near-term constraints you would be a little cautious about that guidance now?

A: What I am going to say is that in spite of slightly lower volumes in the quarter, most important company maintains it operating margin purely from trading I am talking about. So operation margin during the quarter was Rs 46 crore as compared to Rs 45.98 crore of corresponding quarter. Now for the nine month ending 2014 also the gross operating margin from trading is Rs 170.89 crore as compared to Rs 134.7 crore of the corresponding period that is higher by 27 percent. Coming to the average margin, which I am talking everything, net of rebate, surcharge and tolling converted to power purchase agreements (PPAs) during Q3 FY15 is 4.7 paise per unit compared to 4 paise per unit in Q3 FY14. Also for nine months also average margin compared to the same, net of rebate, surcharge and tolling converted to PPAs for nine months period is 4.4 paise as compared to 3.95 paise per unit in nine months FY14.

What is happening is that in this quarter company has also commenced long-term power supply of 104 megawatt power to Rajasthan from the Karcham Wangtoo which was earlier -- there you will able to get 4 paise now the moment it gets converted to long-term, it goes to 5 paise, so there is a 20 percent increase and therefore PTC has always been maintaining a view that long-term is going to be sustainable and alpha, it can be on any side, will keep coming from this short-term market.

One good news is also there that there was a long outstanding dues of Tamil Nadu so now we had gone into an arbitration and Tamil Nadu arbitration, the honourable Arbitral Tribunal, has directed Tamil Nadu Generation And Distribution Corporation (TANGEDCO) to pay a sum of Rs 220 crore to PTC clearing the way for release of long outstanding due of this amount from Tamil Nadu. In the next two months or so we should see the flow of the money.