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PTC India's Q3FY18 results (Outperformer) - Trading volume beat expectations

Q3FY18 result highlights

• The power trading volumes increased by 37% yoy to 14.2bn Kwh in Q3FY18. The growth was led by increase in short term bilateral transactions which jumped by 2.1x yoy which was in turn led by new banking arrangement entered by the company during the quarter. Exchange traded volume grew by 19% yoy to 5.2 bn Kwh whereas long-term and medium-term volume increased by 15% yoy to 5.9 bn Kwh.
• EBITDA for Q3FY18 was Rs566m and PAT was Rs589m, ahead of estimate of Rs378m, up 38% yoy. The beat in estimates was primarily due to higher volumes and high other income of Rs471m +80% yoy. The surcharge income came in at Rs293m (vsRs53m in 3Q FY17).
• The margin for Q3FY18 was 7.1ps/Kwh, +12% yoy, whereas the adjusted margin for rebate and surcharge income,was 4.1ps/Kwh (vs 4.8ps/Kwh in Q3FY17) due to Bangladesh’s increase in banking transactions and low cross border volume (decline by 30%yoy), which have higher margins
• PTC Energy had set up 239MW Wind Capacity in FY17 – 189MW in Andhra Pradesh and 50MW in Karnataka. During the quarter, power purchase agreements with AP and Karnataka have been approved at the pre agreed tariff, thus, removing a huge overhang on the cash flow.
• During Q3FY18, PTC has made an additional provision of Rs425m against investment in Athena (total prov. of Rs925m against investment of Rs1.5bn)

Key positives:  Volume growth of 37% yoy in Q3FY18 and 19% growth in 9mFY18; Banking transactions arrangement with various DISCOMs

Key negatives: Margin decline of 0.7paise/Kwh yoy

Impact on financials: Minor changes in estimates.

Valuations & view

We believe PTC is attractively valued at 10xx FY19E standalone earnings and 1x FY19E BV in view of 15% CAGR in long-term trading volumes which will lead to improvement in gross margins and 15% core earnings growth over FY17-20E. In addition, we expect investments in PTC Energy and other power plants 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.