PTC India's Q2FY19 results (Outperformer) - New long term PPA of 3GW
Q2FY19 result highlights
- The power trading volumes increased by 32% yoy to 22.1bn Kwh in Q2FY19. Short term bilateral volume grew by 134% to 5.8bn Kwh; short term exchange volume grew by 20% to 5.8bn Kwh while long term volume grew by 18% to 7BU.
- Gross margin (incl. surcharge and rebate) for Q2FY19 was 6.63ps/Kwh (decline of 0.10ps/Kwh) and Gross adjusted margin (excluding surcharge and rebate income) for Q2FY19 was 4.11ps per Kwh (decline of 0.21ps/Kwh). The decline in margin in Q2FY19 was primarily related to the volume mix in favour of short term (55% compared to 48% in Q2FY18).
- Dividend income from PTC Financial Services declined by Rs540m to R84m. As a result, PAT was Rs957m for Q2FY19, decline of 27% yoy. Excluding surcharge income and dividend income, the adjusted PAT grew by 46% to Rs676m.
- PTC has started scheduling 400MW of Wind power from SECI – 1 bids of 1050MW. Balance 650MW is likely commence supply power in next 3 to 6 months (addition of 2.25BU for 15 years)
- PTC has finalised PSA and PPA for the 3 year medium term supply of power from the stressed assets. Supply is expected to commence in next three to four months (>10BU). It has finalised the contract for 200MW Bangladesh contract for a short term contract of 18 months which will be converted into long term contract of 15 years.
Key positives: Volume growth of 32% yoy in Q2FY19; Finalisation of medium term PPA of 1900MW contract
Key negatives: Adjusted gross margin declined to 4.11ps/Kwh and decline in dividend income from PFS
Impact on financials: Increase our earnings estimates for FY19E by 10%
Valuations & view
We believe PTC is attractively valued at 7.6x FY20E standalone earnings and 0.8x FY20E BV in view of 19% CAGR in long-term, cross border and medium term trading volumes which will lead to 15% core earnings growth over FY18-20E. In addition, we expect investments in PTC Energy to be monetised over the next one to two years. We reiterate our Outperformer rating. Slower-than-expected volume growth especially in short term and delay in value unlocking from investments is a key downside risk to our call
PTC India Limited (PTC) is a holding company. The Company is engaged in the business of power and investment. It is involved in the trading of electricity and offers power trading solutions in India. Its segments include Power and Investment. It offers business solutions for generators, utilities, cross border solutions, PTC retail, project financing, renewable energy, and energy efficiency and consultancy. It offers PTC retail solutions to public sector undertakings (PSUs) and Central PSUs, Corporates, Industrial Clients, Commercial Clients, and independent power producers (IPPs) and captive power produces (CPPs). It offers facilitation of power sale and purchase on power exchange, which include sale/purchase on day ahead market (DAM) and sale/purchase on term ahead market (TAM). It offers Long and Medium Term Sales, Short Term Sales and Power Banking Arrangements. Through PTC India Financial Services Limited, it offers debt financing on non-recourse or on limited recourse basis
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