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PTC India's Q4FY18 results (Outperformer) - Inline quarter

Q4Y18 result highlights

• The power trading volumes increased by 16.5% yoy to 11.8bn Kwh in Q4FY18. Short term volume/Long term volume/medium term volume grew by 16%/24%/ (24%) yoy. Power trading volume increased by 18% yoy to 57BU. Short term volume/Long term volume/medium term volume grew by 19.5%/21.2%/ (19%) yoy. Long term bilateral volume grew by 34% yoy while cross border volume declined by 13% yoy.
• Gross margin (incl. surcharge and rebate) for Q4FY18/FY18 was 9.3ps per kwh/7.4 per Kwh (decline of 2.7ps/kwh/4ps/kwh) and Gross adjusted margin (excluding surcharge and rebate income) for Q4FY18/FY18 was 4.9ps per Kwh/4.3ps per Kwh (decline of 5ps/Kwh and 6ps/Kwh). The decline in margin for Q4FY18/FY18 was primarily related to Bangladesh volumes.
• As a result, PAT was Rs644m for Q4FY18, ahead of estimate of Rs578m. Excluding surcharge income of Rs321m, the adjusted PAT grew by 13% to Rs419m. Adjusted PAT for FY18 was Rs2.4bn, +6% yoy.
• PTC Energy, a subsidiary, reported revenue/PBT/PAT of Rs2.8bn/Rs260m/Rs90m.  The PLF or wind portfolio of 288MW was lower by 4-5% odd due to lower wind density in FY18. Expected EBITDA from the wind business if Rs3.5bn.
• PTC Financial Services, another subsidiary, reported a meagre profit of Rs240m on account of provision of Rs3.6bn (vs Rs1.4bn in FY17) led by increase in NPA’s and write off of investment book of Rs1.2bn.

Key positives:  Volume growth of 16% yoy in Q4FY18

Key negatives: Adjusted gross margin decline of 5ps/Kwh yoy

Impact on financials: Downgrade our earnings estimates by 12%/6% in FY19/FY20E due to decline in dividend income from PFS (Rs0.2/share in FY18 vs Rs1.5 in FY17).

Valuations & view

We believe PTC is attractively valued at 8x 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.