STOCK UPDATE
PTC India
Cluster: Apple Green
Recommendation: Buy
Price target: Rs75
Current market price: Rs62
Tariff hike and policy reforms the key to future growth
The past two quarters have been depressed for PTC India owing to the continuous delay in receiving payment from two state electricity boards (SEBs), Tamil Nadu SEB and Uttar Pradesh SEB. These two SEBs together owe over Rs1,000 crore to PTC India. While the power supply to Tamil Nadu has been completely stopped, Uttar Pradesh is being supplied on a cautious basis. However, the recent petition filed by the Tamil Nadu state utility to hike tariff with effect from April 1, 2012 amid mounting losses could see the enforcement of the tariff hike and would augur well for PTC India. Uttar Pradesh can also see some progress on the tariff hike proposal post- election; however we are not expecting any immediate action now. Also, the commissioning of its first power tolling project, the Simhapuri power plant (150MW), is expected by March end and would boost its trading volumes from FY2013 onwards. Sound policy action on tariff hike and receipt of delayed payments (which would lower its interest cost) along with a surcharge remain the key monitorables for the stock in the near term. We maintain Buy on PTC India with a revised price target of Rs75.
Maintain Buy, price target revised to Rs75
PTC India?s traded ST volumes posted a subdued growth in recent months due to the poor financials of the SEBs. However, the overall power traded volumes have been partially supported by the boost in the long-term volume. The commissioning of its first tolling project (the Simhapuri project) and the Karcham Wangtoo project are also likely to boost the volume in the coming quarters. In view of the recent developments in its various projects, we have fine-tuned our volume estimates. Overall, our estimates have been upgraded for FY2012 and FY2013 by 5-10% each. Accordingly, our price target has been upgraded to Rs75. The near-term trigger in the stock is the receipt of the payment from SEBs, a reduction in debt and interest costs, and the commissioning of various power projects under power purchase agreements. We are expecting a compounded annual growth rate of 13.4% over FY2011-14. That implies a low PEG ratio of 0.67. The stock is also trading very attractively at 0.7x FY2014E book value. Hence, we maintain our Buy rating on PTC India.
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