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PTC India ICICI Direct Report

Saturday, 25 August 2007

PTC India’s results for the year ending March 31, 2007 (FY07) were below expectations. Net sales at Rs 3,766.66 crore (estimate: Rs 3,933.54 crore) were impacted due to access factors and real-time transmission congestion. Going forward, we expect PTC’s traded volumes to increase on account of higher utilization from the Tala unit (4 billion units) and significant volumes from long-term agreements starting Sept 2008. We reiterate our OUTPERFORMER rating on the stock.

RESULTS HIGHLIGHTS

· Income from operations declined 20% to Rs 602.48 crore in Q4FY07 from Rs 754.68 crore in the corresponding quarter the previous year. This was caused by a 33% decrease in power units traded during the quarter (1,445 million units against 2,168 million units in Q4FY06). Net sales for the year were down 21% at Rs 3,766.66 crore against Rs 3,108.55 crore.

· Operating profit for the quarter was lower by 25% at Rs 8.41 crore (Rs 11.28 crore). For the full year, operating profit declined 17.5% to Rs 51.10 crore from Rs 61.95 crore in FY06. The decrease in PBDIT was caused by a decrease in trading margin and a lower
volume base. The margin for power trade was capped by the CERC at 4 paise/unit.

· Net profit for the quarter declined by 17% to Rs 5.80 crore (Rs 6.99 crore). Net profit for the full year was down 14% to Rs 35.09 crore from Rs 40.63 crore. Decline in net
profit was lower than that in operating profit on account of a lower tax burden.

OUTLOOK

During FY07, PTC has entered into long-term power purchase agreements (PPAs) for six projects aggregating a capacity of 3,144 MW, and power sale agreements (PSAs) for another six projects aggregating a capacity of 2,314 MW. The cumulative capacity tied up through PPAs stands at 6676.3 MW and on sale through PSAs/MOUs for sale stands at 5286.5 MW.

The company has also entered into MoUs for another 35 projects totaling to a capacity of 16,703 MW. The PPA and PSA for these are still being negotiated. After Sept 30, 2006, new procurement of capacity on a long-term basis by state power utilities/distribution companies has been mandated to be through competitive bidding only. PTC has adapted its business model to this change, and has successfully participated in several bid processes conducted by state utilities.

Development of new businesses gained further momentum with several advisorycum-
transaction agreements being structured. PTC’s advisory service, which commenced in the previous year, has an order book of Rs 3 crore.

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At the current market price of Rs 57, the stock is trading at 10.05x its FY09 earnings, 5.50x on FY09 EV/EBITDA and 2.33x FY09 P/BV. The company’s increased focus on highgrowth, high-margin long-term trading should help it sustain growth and also improve margins. In our detailed report (Jan 21, 2007), using a DCF valuation, we had arrived at an intrinsic value of Rs 95 per share as we expect long term business to generate higher income and profitability We reiterate our OUTPERFORMER rating on the stock and maintain our price target.

Outperformer : 20% or more;
Performer : Between 10% and 20%
Hold : +10% return;
Underperformer : -10% or more.
Source : ICICIdirect Research

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