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PTC India's Q4FY19 results (Outperformer) - Operationalized 1GW of medium term PPA

Q4Y19 result highlights

• The power trading volumes declined by 10% yoy to 11bn Kwh in Q4FY19. However, the volume grew by 10% for FY19. Volume grew at  26% yoy in H1FY19 but de grew by 9% in H2FY19 led by weak demand in second half of fiscal year. Long term bilateral volume grew by 13% yoy in FY19. Short term volume contributed 54% to total volumes in FY19. Exchange contribution is 66% to total short term volumes.
• Gross margin (incl. surcharge and rebate) for Q4FY18/FY18 was 10.1ps per kwh/7.62 ps per Kwh (increase of 0.9ps/kwh/0.13ps/kwh) and Gross adjusted margin (excluding surcharge and rebate income) for Q4FY19/FY19 was 3.90ps per Kwh/4.05ps per Kwh (decline of 0.6ps/Kwh and 0.3ps/Kwh). The decline in margin for Q4FY19/FY19 was primarily related to loss in profitable Bangladesh contracts.
• Increase in rebate income has led to growth in profit in Q4FY19. As a result, PAT was Rs539m for Q4FY19 (est of Rs470m) and Rs2.6bn in FY19 (vs Rs3.2bn). Decline in reported profit in FY19 is due to lower dividend income from PTC Financial Services by Rs543m.
• PTC Energy, a subsidiary, reported EBITDA/PAT of Rs3.1bn/Rs526m.  The PLF or wind portfolio of 288MW was 24.3%.  PTC Financial Services, another subsidiary, reported a meagre profit of Rs240m on account of provision of Rs3.6bn led by increase in NPA’s and write off of investment book of Rs1.2bn.
• PTC has operationalized medium term PPA of 1050MW.Balance 850MW is expected to be operationalized soon.

Key positives:  Dividend of Rs5/share; Dividend declared by PFS of Rs0.8/share

Key negatives: Decline in adjusted gross margin by 0.3ps/Kwh

Impact on financials: Minor change in earnings estimates

Valuations & view

We believe PTC is attractively valued at 8x FY20E standalone earnings and 0.8x FY20E BV in view of 15% CAGR in long-term, cross border and medium term trading volumes which will lead to 15% core earnings growth over FY19-21E. 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.