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ATS Research Desk Company Name: PTC India ltd Fundamental Report

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Industry Power Trading

CMP 116

Recommendation Buy at CMP

Target 180- 210

Time Horizon 1 - 1.5 year

Introduction: Formerly known as Power Trading Corporation, PTC is a private public partnership involved in business of trading of electricity and offers power trading solution, simply means buying electricity from those who have surplus and selling to those who have shortage to achieve economic efficiency and reliable and continuous supply of electricity.

Investment Rationale: CMP as on 18/7/2017 52 Week High/Low Market Cap (Cr) Total Debt (FY-17)(Cr) Enterprise Value(FY-17)(Cr) Cash and Investment (FY-17)(Cr) Equity Capital (Cr) Face Value Share Holding Pattern Promoters&Promoters Group Holding (%) Public Holding (%) Grand Total

116 67/121 3533 nill 3382 161 296 10

 

    

16.22 83.78 100

Sustainable and sound business at throwaway valuation Governments focus on infrastructure and power generation, nd India –fastest growing major economy and 2 largest population with inadequate power supply Expertise in entire value chain of electric power industry and ideal business mix result in higher margin Venture into lucrative renewable power generation via PTC Energy Four major power sector PSU’s are promoters High dividend yield Robust growth in subsidiary –PFS and Order book for next 2 years

Return on Networth 20 15

16.25

10.75

10

EPS per share 18.04

13.13

15 10

9.47

14

12.5 7

6

FY 12

FY 13

8

5

5 0

0

FY 12

FY 13

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FY 14

FY 15

FY 16

FY 14

FY 15

FY 16

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PTC India Company and Business Overview: Business Segmentation:

Solution for generators

Solution for utilities

Cross border solutions

•Power sales on long term, meduim term and short basis as well as banking arrangemnet

•delivering services to the State Utilities •business relationships with Utilities in all regions of India

•Bhutan- Trading aggreement 1416 MW •Nepal-Bhutan- Trading aggreement 150 MW •Bangladesh- Trading aggreement MW

PTC Retails

Project Financing

Renewable Energy

•Industrial and Commercial customers maintaining the contract demand of 1 MW and above across India both in Public and Private Sector •400+ clients

•PTC India Financial services •provides fund based / non-fund based financial assistance in the form of term debt or corporate debt instruments

•PTC Energy ltd •Invested 140.7 crore, will infuse further 600 crore in FY 17 •already commisioned 50 MW •Plans to set up 350 MW by FY 18

In 2015-16, Company has added long term power supply to an extent of 461 MW to UP and Tamil Nadu, long term power supply has reached to 2,571 MW. Long term contracts of 890 MW are expected to get operationalized soon. Cross border transactions contributed 7,151 MUs (16.88%) in the total traded volumes in FY-16.PTC retail business has grow 34% over previous year, added significant clients such as Reliance Industries, MRF Tyres, ACC Cement, Delhi Metro Rail Corporation, SAIL in its portfolio. The company has also formed strategic consortium with REC Transmission Projects Company Limited for jointly undertaking engineering and contracting activities for large size transmission projects. Segmentwise growth in BU Q1FY17

Growth in trading volumes (BU)

Q1FY16

6833 5778

4663 3838 720

645 13.8 18.2

Short Term Trades Medium Term

24.5 24.3

28.6

35.1 37.1

42.4

Long Term Trades FY 09 FY10 FY11 FY12 FY13 FY14 FY15 FY16

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Sector Overview: Electricity industry is capital-intensive having long gestation period. Resources of power generation are unevenly dispersed across the country. Electricity is a commodity that cannot be stored in the grid where demand and supply have to be continuously balanced. The widely distributed and rapidly increasing demand requirements of the country need to be met in an optimum manner. To resolve this problem government enacted the Electricity Act 2003 wherein government set the ground for open access of electricity and power trading. Since production and utilization of Power is not uniformly distributed in India, the idea of Power trading empowers to mitigate this problem and wastage of power by taking surplus power from one region and providing to the region which has a shortage. With government’s aggressive stance on providing electricity to every household by 2018, power trading companies emerging as a biggest beneficiaries and contributors as they provide efficiency in transfer and distribution, thus reducing wastage and cost. As on 31st March 2010, the Commission has awarded 45 trading licenses. Customers of power trading companies includes Suppliers- State/Private Utilities, CPPs/IPPs/MPPs, Renewable Sources Buyers- State/Private Utilities, Direct Open Access Customers (Industrial & Commercial Consumers) The power sector witnessed 11.4% growth in installed capacity with an addition of 30,422 MW. Within power sector, there has been substantial capacity addition in the renewable energy and total RE installed capacity stood at 38,822 MW at the end of FY-16. Transmission lines’ addition achieved was 28,114 CKms as against target of 23,712 CKms. The power supply situation has improved and we had 2.1% of energy deficit and 3.2% of peak deficit as compared to 3.6% & 4.7% during 2014-15. Bilateral contracts – 1-Long Term Bilateral Contracts- Bilateral power trading contracts between generators, traders and customers for duration 12 years to 25 years based on standard guidelines from Ministry of Power (MoP) or concerned Regulator (Central or State) for mutual benefit of both trader and the customer 2-Short term/ medium term bilateral contracts- contracts between generators, traders and customers for duration 15 min to 3 year Competitors: Power trading exchanges have emerged as serious competitors for power trading companies but power trading companies are cooperating with them to upgrade their technology and for level field. CERC has permitted trading of Electricity through Power Exchange with effect from June 2008. Currently, two exchanges viz. Indian Energy Exchange (IEX) and Power Exchange of India Limited (PXIL) are in operation in India which facilitate an automated on-line platform for physical day-ahead contracts. ATS Wealth Managers Pvt Ltd.

Manikara n Power Ltd JSW 12% Power Trading Company 13% Mittal Processor s (P) Ltd 17%

Top 5 players in power trading market

PTC India Ltd. 40%

Tata Power Trading Company 18%

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Investment Rationale:  Sustainable sound and scalable business at throwaway valuation: India is the third biggest producer of power in Asia with an introduced capacity that has expanded from 1362 MW in 1947 to around 298 GW as on 31st March 2016. However, with this development story are the deficiencies in meeting peak (3.2%) as well as shortage (2.1%) in FY2015-16. Losses in power distribution are the maximum as it has grown up in an unplanned manner. It is around 35% in India. The figure varies widely in every state (varies from 9.13% in Pondicherry to 85.49% in Manipur) Installed capacity increased steadily over the years, posting a CAGR of 10.57 per cent in FY09–17. It gives a very significant business opportunity for PTC as it commands a 35% market share in India. Now talking about the valuation, for some mysterious reason, the stock price has not kept pace with the fundamentals of the Company. The stock was quoting at Rs. 145 in 2010 and it is still languishing in the same zone though there has been a quantum improvement in the fundamentals. This aberration cannot continue for infinity and PTC India will soon be rewarded its true value. PTC India has a turnover of about Rs. 14,000 crore with a PAT of Rs. 500 crore. It is an F&O stock. Such stocks normally command a premium. The market cap of PTC India Financial Services, the subsidiary, is itself about Rs. 2600 crore. So, a market cap of only Rs. 3400 crore for PTC India is unreasonably low and unjustified because it ignores the stand-alone business and assets of the holding company  Governments focus on infrastructure and power generation: The Union Cabinet has endorsed a third round of power reform – UDAY (Ujwal Discom Assurance Yojana) to realize a turnaround in the financials of the state DISCOMs. According to the plan state governments would assume control 75% of the debt of their individual DISCOM and the adjust 25% would be restructured by the banks. This would essentially lessen the debt and interest burden of DISCOMs and enhance their money streams along these lines expanding their obtaining influence. This would prompt expanded power off take by Discoms and increment sought after for control. Moreover, an ascent in control request would prompt higher power transmission and exchanging, which would profit organizations like PTC India. As per statement given by Mr. Piyush goyal , India will invest $1 trillion in power sector by 2030 which create lots of business opportunity for industry experts like PTC to play much bigger role and share the profit.  Expertise in entire value chain of electric power industry and ideal business mix result in higher margin: PTC which started as a power trading company had ventured into entire value chain like production of electricity through its subsidiary PTC energy, financing the projects via subsidiary PTC India financial services. Provide consulting and advisory service to large and complicated projects. Provide portfolio management service. Have exclusive cross border deals with South Asian countries like Nepal, Bhutan and Bangladesh. Company’s margins have increased from 4.6 paisa/unit to 5 paisa/unit. It is expected to increase in margin to 6 to 7 paisa in FY 18 as company is trying to increase the percentage of long term sales to total sales from current 40% to +50% where margins are higher. PTC Retail business, which was set up for facilitating power supply to the industrial and commercial consumers, is growing at a fast pace and has grown 34% in FY 17

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 Venture into lucrative renewable power generation via PTC Energy: Company entered into a MoU with Solar Energy Corporation of India (SECI) on 9th Octber’15 for sale and purchase of power generated from 3000 MW solar projects for onward sale on long term basis, for full term of 25 years. It has already commissioned wind power projects worth 50MW. Through its wholly owned subsidiary PTC Energy, it plans to set up 350 MW by FY18 which are likely to earn 16% post tax RoE as compared to 5-7% earned by the company on its regular trading business.  Four major power sectors PSU’s are promoters: Four PSU companies who are largest power companies in India NHPC, NTPC, Power Grid, Power Finance Corp are promoters of the PTC India. These heavyweight promoters mean guaranteed business for PTC in India.  High dividend yield: PTC India offers a dividend yield of 2.17% at the CMP of Rs. 115 which offers a cushion against the impulses of the market.  Robust growth in subsidiary –PFS: At 8 P/E and market cap of 2624 Cr, PFS is performing exceptionally well. PTC India Finance (PFS) in last quarter reported PAT growth of 123% YoY at Rs 109 cr led by profit on sale of investments (Rs.131 cr). Loan book grew by 43% YoY to Rs 12,342 cr, management maintained their guidance of 30-40% loan book growth for next 2-3 years led by renewable energy. It shows the inherent strength in PFC Financial services. As banks are hesitating to extend loan to power sector, PFC gets the opportunity play bigger role in future to come. Order book for next 2 years: At the end of FY16 PTC India had tied up with purchases of ~11GW with various power producers/IPPs and around 7.7 GW capacities for onward sale. Under long term contract, PTC India expects total cumulative capacity of 5200 MW of capacity to get operationalised in FY17E-19E

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PTC India Financials: Consolidated FY16 :

Income Statement

2016

2015

2014

2013

2012

2011

2010

13,985.36

13,901.18

12,099.08

9,199.39

8,058.70

9,200.43

7,839.16

52.9 14,038.26

38.9 13,940.08

44.55 12,143.63

15.43 9,214.82

51.52 8,110.22

62.09 9,262.53

86.56 7,925.72

12,618.09

12,900.16

11,268.93

8,750.56

7,652.44

8,955.60

7,737.98

Operating Profit

1,420.17

1,039.92

874.7

464.26

457.78

306.93

187.73

Interest

535.25

422.04

228.36

108.34

95.27

46.55

12.94

PBDT

884.92

617.88

646.34

355.92

362.52

260.38

174.79

Depreciation

10.09

8.45

8.54

8.3

9.16

10.5

5.57

PBT & Exceptional Items

874.83

609.43

637.8

347.62

353.36

249.88

169.22

Exceptional Items

-37.53

-32.47

4.29

0.01

0.27

0.17

-

Profit before Tax

837.3

576.96

642.09

347.63

353.62

250.05

169.22

Provision for Tax

250.92

183.59

192.06

105.01

94.21

73.28

48.55

Profit after Tax

586.38

393.37

450.03

242.62

259.42

176.77

120.67

Minority Interest

-156.13

-69.85

-81.03

-39.91

-55.16

-17.65

-5.43

Share of Associate Consolidated Profit

-

-67.26

-5.22

-4.43

-0.14

6.9

-7.97

430.25

256.26

360.94

198.28

204.12

166.03

107.27

Basic EPS

7.89

6.86

8.49

4.36

4.08

3.4

2.12

Diluted EPS

7.89

6.86

8.49

4.36

4.08

3.4

2.12

Operating Revenue Other Income Total Income Total Expenditure

Balance sheet-Consolidated FY16: ATS Wealth Managers Pvt Ltd.

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16-Mar

15-Mar

14-Mar

13-Mar

12-Mar

SHAREHOLDER'S FUNDS Equity Share Capital Total Share Capital Reserves and Surplus

296.01 296.01 2,493.87

296.01 296.01 2,342.55

296.01 296.01 2,212.40

296.01 296.01 2,029.67

294.97 294.97 1,955.14

Total Reserves and Surplus

2,493.87

2,342.55

2,212.40

2,029.67

1,955.14

Total Shareholders Funds

2,789.88

2,638.56

2,508.41

2,325.68

2,250.12

0

0

0

0

6.28

Long Term Provisions

3.86

2.64

2.48

1.85

2.25

Total Non-Current Liabilities

3.86

2.64

2.48

1.85

8.53

Trade Payables Other Current Liabilities Short Term Provisions Total Current Liabilities

2,006.21

1,620.71

1,085.67

1,100.95

1,258.19

50.63

33.97

48.67

37.15

36.11

108.91

81.64

69.61

55.73

59.04

2,165.75

1,736.32

1,203.95

1,193.83

1,353.33

Total Capital And Liabilities ASSETS NON-CURRENT ASSETS Tangible Assets Intangible Assets Capital Work-In-Progress Fixed Assets Non-Current Investments Deferred Tax Assets [Net] Long Term Loans And Advances Total Non-Current Assets CURRENT ASSETS Current Investments Inventories Trade Receivables

4,959.49

4,377.52

3,714.84

3,521.37

3,611.98

24.13 0.49 0

26.45 0.78 0

29.19 0.78 0.08

32.23 0.47 0

33.49 0.63 0

24.62

27.23

30.05

32.7

34.12

890.4 6.89

877.33 6.44

912.98 6.31

912.98 4.24

823.5 0

17.31

16.11

12.92

8.43

6.82

939.22

927.11

962.26

958.35

864.44

470.71

576.76

46.87

11.51

0.04

0

0

0

18.31

41.45

3,225.75

2,515.10

2,085.69

2,142.11

2,581.01

Cash And Cash Equivalents

161.45

279.55

544.66

353.46

45.82

162.31

78.51

69.7

37.31

78.82

NON-CURRENT LIABILITIES Deferred Tax Liabilities [Net]

CURRENT LIABILITIES

Short Term Loans And Advances OtherCurrentAssets Total Current Assets Total Assets

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0.05

0.49

5.66

0.32

0.4

4,020.27

3,450.41

2,752.58

2,563.02

2,747.54

4,959.49

4,377.52

3,714.84

3,521.37

3,611.98

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Valuation Ratios Enterprise Value (Cr.) EV/Net Operating Revenue (X) EV/EBITDA (X) MarketCap/Net Operating Revenue (X) Retention Ratios (%) Price/BV (X) Price/Net Operating Revenue Earnings Yield

2012

2013

2014

2015

2016

1,757.94

1,409.27

1,457.85

2,110.73

1,727.09

0.23

0.16

0.13

0.16

0.13

8.98

7.75

3.97

6.23

4.46

0.24

0.2

0.17

0.18

0.15

63.24

63.21

76.43

67.93

68.32

0.8

0.76

0.8

0.91

0.68

0.24

0.2

0.17

0.18

0.15

0.07

0.07

0.13

0.08

0.12

Vikas Bhosale, Equity Research Analyst Disclaimer: This report is only for the information of our customers. Recommendation, opinions or suggestions are given with the understanding that readers acting on this information assume all risks involved. The information provided herein is not to be construed as an offer to buy or sell securities of any kind. ATS and/or its group companies do not as assume any responsibility or liability resulting from the use of such information

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