Hold PTC India; target of Rs 130: Sharekhan

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Sharekhan's research report on PTC India

As per PTC India’s management, the recent spike in merchant prices on energy exchanges was due to the abrupt rise in demand for electricity during the past one month. Management stated that the  changed demand-supply scenario is mainly due  to two reasons: 1) increased demand because of  weather beating load on account of less rainfall,  leading to increased agricultural load along  with high humidity and temperature leading to  increased air-conditioning and other load; and  2) less availability of power from non-fossil fuels  (hydro generation was short by 17% due to less  inflow of water) and nuclear source (outage due  to planned shutdown of 2,700MW) of generation  during the period. Further, management stated that there has been a 64% increase in volume traded, while PTC India commands ~38% market share in the energy traded platform. Hence, on this backdrop, we have increased the volume assumption and expect it to grow by 15%/16% YoY to ~55/64BU in FY2018/2019, respectively.

Outlook

PTC India has delivered better volumes coupled with improved realisation in Q1. Further, management has guided for volumes to be at healthy levels on account of the recent hike in merchant prices and strong volume visibility from the domestic (MNRE and SECI) as well as international (cross- border trades) markets. However, we have maintained 6paise per unit margin and revised our earnings estimates accordingly for FY2018 and FY2019. We reiterate our Hold rating on the stock but revise our price target (PT) to Rs.130.

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