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Core business remains strong

Trading volumes increased by 35.6% YoY in Q4FY21 to 16.3BU resulting in 92.6% YoY increase in PTC India’s (PTC) adj. PAT (adjusted for provisions of Rs0.6bn) to Rs1.2bn. The increase in volumes is primarily attributed to 88% jump in short-term volumes to 9.2BU, while medium and long-term volumes were flat at 7.1BU. However, trading margins shrunk 22% to 3.3p/kW due to two factors: 1) higher short-term transactions, and 2) withdrawal of one-off gains from Bangladesh cross-border trades booked in prior quarters. Higher LPS from discoms resulted in 151% YoY increase in surcharge to Rs1.1bn, although rebates were 15% lower YoY at Rs260mn. PTC is in the final stages of signing PPA/PSA for 1,070MW out of the 2,500MW Pilot-II 3-year tender. This, as well as power demand improvement, will help PTC’s high volume growth momentum to continue. Rs7.5/sh total dividend took the payout to 54%. Maintain BUY.

Higher short-term volumes push overall volumes:

For Q4FY21, revenues were up 10.4% YoY at Rs35.9bn, while EBITDA was up 70% YoY at Rs1.7bn. Reported PAT was at Rs633mn, down 1.3% YoY, adj. PAT (adj. for impairments) rose 92.6% to Rs1.2bn. Factors impacting profit for the quarter:

1) 35.6% YoY growth in volumes at 16.3BU buoyed by 88% increase in ST volumes at 9.2BU,

2) rebate / surcharge at Rs260mn / Rs1,137mn were down 15% / up 151% respectively,

3) impairment provision of Rs500mn taken for PEL assets and Rs103mn for capital advance,

4) core margins were 22% lower at 3.3p/kWh vs 4.2p/kWh mainly due to higher proportion of ST volumes and withdrawal of one-off gains booked in earlier quarters for Bangladesh cross-border trades. Debtors declined further to Rs58.4bn at FY21-end vs Rs80.5bn at H1FY21-end while creditors declined to Rs36.2bn from Rs64.6bn (both lower than FY20 levels).

21% volume growth in FY21:

In FY21, EBITDA / PAT were at Rs6.3bn / Rs4.1bn, up 44% / 28% YoY (adj. PAT up 47% at Rs4.7bn). Volumes grew 21% YoY to 80BU as PTC clocked 39% YoY volume increase in H2FY21 while margins were at 4.2p/kWh.

Higher focus on consulting with approval of acquisition of IL&FS’ energy consulting business:

PTC’s board approved acquisition of the energy consulting business of IL&FS Energy Development Company through NCLT for a small consideration, which will provide 15% IRR post acquisition. The acquired company is involved in four areas of energy consulting, viz. energy efficiency, distribution advisory, waste-to-energy conversion and environment-related efficiency. It has pending revenues (from orders in hand) of Rs1bn over the next 4 years on which it will earn 40-50% margins. It currently employs 15-20 people. PTC’s own consultancy income grew 50% YoY in Q4FY21 to Rs91mn and 20% YoY in FY21 to Rs294mn. Orderbook is at Rs2bn. PTC aims to diversify into non-regulated businesses and gain synergies from the said acquisition, which can help propel its consulting business profitability.

Final dividend of Rs5.5/sh for FY21:

PTC’s FY21 total dividend of Rs7.5/sh translates into a payout of 54%. High payout is expected to continue as the company’s stated dividend policy declared in FY20 is of payout of at least 50% of annual profits.

Sale of non-core businesses

remains under consideration, but is delayed. Company has however mentioned that it is still pursuing with potential buyers.

Valuation:

We maintain BUY on PTC with an SoTP-based target price of Rs135/share. Divestment of non-core holdings will unlock value and rerate the stock price meaningfully.

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