Stock pick from the power sector
1/13/2012 12:42 PM Friday
PTC India is a company that pioneered power trading in India. Factors like the expected start of its Simhapuri project by the first week of February 2012 and the likely commissioning of its Meenakshi project by June 2012 are expected to be volume drivers for the company. The concerns regarding pending receivables from two state electricity boards are also fading. The change in the business mix towards long-term contracts provides extended visibility for its volumes and margins. PTC India has also been a consistent dividend paying company, with a yield of 3.40 per cent (ex-dividend). On the valuations front, the scrip is trading at just 9x of its trailing four-quarter earnings. What makes the scrip even more attractive is the 60 per cent stake it holds in PTC Financial Services (PFS). Adjusted for the same, the valuations look much better.
PTC Energy’s (a 100 per cent subsidiary of PTC India) 200 MW Simhapuri tolling project is likely to be commissioned soon. The management, in a recent interview with a financial news channel, has stated that it will start getting power by the end of February 2012. This project is of a total of 300 MW, of which 200 MW would be tolling and another 100 MW will also be sold through PTC Energy by way of a power sales agreement. In a tolling agreement, the buyer supplies fuel and receives the resulting power output of the facility, in effect buying the service of converting fuel into electric energy. The, the entire 300 MW will be sold through PTC. The other 200 MW project at Meenakshi is expected to be commissioned in H1 FY13. This is expected to result in better volumes.
PTC India was also facing problems in terms of receivables due from the state electricity boards in Tamil Nadu (Rs 700 crore) and Uttar Pradesh (Rs 300 crore). However, the management has stated that the payments will start coming in soon. The company has already received Rs 51 crore from Tamil Nadu, and is expecting more payments in the coming months.
On the margins front, PTC India’s reported gross margin was 5.83 paise per unit, which is lower than the average of seven paise per unit in the last five quarters. However, this is a bit higher than the margin of five paise per unit seen in Q2 FY11. The lower margin was due to the higher proportion of sales under the short term (ST) category – 51 per cent against 47 per cent in Q2 FY11. In addition, the average realisation was Rs 2.80 per unit as against Rs 3.20 per unit in Q2 FY11. This would have led to lower margins, given the margin cap of four paise per unit for realisations at or below Rs 3. However, going ahead, long-term contracts with higher realisations are expected to drive growth. So, the margins are either expected to improve or to remain stable.
The company’s subsidiaries PFS and PTC Energy are witnessing good business traction. It has a 60 per cent holding in PFS, which enjoys a market cap of Rs 630 crore. This makes the valuations of PTC India much better.
On the financial front, the company has witnessed good growth in the past. For H1 FY12, the company has posted topline growth of Rs 4876.49 crore and bottomline growth of Rs 80.80 crore, as against Rs 3836 crore and Rs 71.46 crore respectively in H1 FY11. Considering all these factors like expected volume growth, sustained margins and possible recoveries, we recommend a ‘buy’ on the scrip with a target price of Rs 57.
| Last Five Quarters|| |
| ||Sep ' 11 ||Jun ' 11 ||Mar ' 11 ||Dec ' 10 ||Sep ' 10 |
|Sales ||2389.05 ||2487.44 ||2078.78 ||1758.01 ||2469.33 |
|Other Income ||13.97 ||17.43 ||14.26 ||15.49 ||17.98 |
|Operating Profit ||44.38 ||47.65 ||34.34 ||41.11 ||38.1 |
|Interest ||7.88 ||1.39 ||0.07 ||0.78 ||0.22 |
|Depreciation ||1.13 ||1.11 ||1.29 ||1.32 ||1.22 |
|Net Profit / Loss ||35.57 ||45.23 ||33.51 ||37.96 ||39.95 |
|Equity Capital ||294.97 ||294.97 ||294.97 ||294.63 ||294.55 |
|Shareholding Pattern as on : || 30/09/2011 |
|Indian Promoters ||16.27 |
|Mutual Funds and UTI ||14.61 |
|Banks Fin. Inst ||33.40 |
|FIIs ||14.93 |
|Private Corporate Bodies ||9.73 |
|NRIs/OCBs ||0.72 |
|General Public ||10.34 |
|GRAND TOTAL ||100.00 |
|Name of Company ||Price (Rs) ||10/1/2012 ||Gain |
|Amar Remedies ||87.00 ||130.00 ||49.43% |
|Ind-Swift Laboratories ||79.10 ||108.50 ||37.17% |
|Tera Software ||48.50 ||59.50 ||22.68% |
|Chambal Fertiliser & Chemicals ||69.00 ||83.00 ||20.29% |
|Power Grid Corp. of India ||96.00 ||102.00 ||6.25% |
Find More Articles on: DSIJ Magazine, Low Priced Scrip, Stock Recommendations, Fundamental Picks, Product, Mid Cap, PSU