PTC India, OUTPERFORMER

PTC India, OUTPERFORMER

Current price Rs 105 Target price Rs 178

Potential upside 69% Time Frame 12 months

Lower volumes on volatility

PTC India’s result for Q3FY08 was below expectations. During the quarter under review, revenues from operations declined 9.12% y-o-y to Rs 733.79 crore. Traded power units were down 9% to 2009 million units due to lower volumes from the Tala Hydroelectric Power Plant in Bhutan as well as a fall in surplus volumes from the Himachal Pradesh State Electricity Board. The ratio of long-tem to short-term business stood at 55:45. Short term margin remains at 4 paisa per unit.

PAT down 27.9%

The company’s margins declined due to higher proportion of volumes from the Tala project with low margins. Realiasations during the quarter remain flat at Rs 3.65 per unit. Trading margin remains flat Rs 0.01/unit. Other income has increased by 69.2% to Rs 7.5 crore because of interest income, profit on sale of investments, and income from consultancy.

Valuations

We expect short-term trading volumes to rise at a 7% CAGR from 8,095 million units in FY06 to 10,602 million units in FY10E. We also expect long-term volumes to rise significantly from 2,023 million units in FY06 to 21,411 million units in FY10 on the back of the company’s long-term tie-up with power developers. Gross turnover is expected to jump by 28.37% to Rs 6,626.56 crore in FY09E from Rs 3,108 crore in FY06. We expect net profit to increase at a 32.9% CAGR to Rs 86.55 crore from Rs 36.53 crore. EPS is expected to be at Rs 5.77 in FY09E. At the current market price of Rs 105, the stock is currently trading at 18.9x FY09 earnings. We rate the stock an outperformer considering the business potential and earning visilbility from its long-term trading contract.

Source:I SEC, February 1, 2008