STOCK UPDATE - PTC India - Sharekhan

PTC India
Cluster: Apple Green
Recommendation: Buy
Price target: Rs.88
Current market price: Rs48

TNEB plans to hike tariff by 25-40%; positive for PTC India

Event

The Tamil Nadu Electricity Regulatory Commission (TNERC) has accepted the debt-ridden Tamil Nadu Electricity Board (TNEB)'s proposal to revise tariff for both domestic and commercial consumption segments. Accordingly, for high tension units, the increase would be 25% and for domestic users it would be up to 40%. The proposal would be updated on the website of TNERC and published in newspapers to get a view of the public. A final call would then be taken on its basis. People can submit their views till December 31. The move would stem the losses of TNEB by Rs4,000-5,000 crore. TNEB's losses as on March 31, 2011 stood at Rs40,651 crore. Its debt burden currently stands at Rs42,175 crore.

Some relief for PTC India, however debt would hang about at least till Q1FY2013

PTC India (PTC) has Rs700 crore of receivables due from TNEB. Further the Uttar Pradesh State Electricity Board [SEB]'s dues to PTC stand at Rs400 crore. TNEB's continuous delay in payment has resulted in a stretched working capital cycle for PTC. This has resulted in PTC raising debt (Rs421 crore raised at the end of Q2FY2012), thereby tainting its earlier debt free status. PTC has indicated that it is levying a surcharge of 15% per annum on delayed payment (while it is paying interest @ 10.5% only). However the same would be booked on receipt basis. The surcharge, as and when received, would boost its performance numbers.

While a tariff hike for TNEB is still at a proposal stage, it is sentimentally positive for PTC which has severely underperformed due to delay in payments from SEBs. Nonetheless, the power tariff hike would be effective only from April 1, 2012. Hence we are likely to witness at least two more painful quarters of high leverage on PTC's books. Tariff hikes by other SEBs like the one of Uttar Pradesh, which is a major client of PTC, would also be a positive for the latter. Managing working capital in tough times has become a major challenge before PTC and it would be a major reason for rerating in the coming times. The stock has been thrashed severely by over 34% in the last 1 month on payment delays from SEBs. Valuation-wise, PTC looks attractive; it is trading at 0.6x its FY2012E book value. We maintain our Buy rating on the stock with a price target of Rs88.

Source : Equity Bulls

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