PTC India: good show in a sluggish electricity market

The volume growth rate for FY16, although in single digits, is commendable considering the overall sluggishness in the Indian electricity market


While demand is another major headwind the industry is grappling with, more proof that the company is on to a steady growth path can help improve the long-term performance of the stock, which is down 20% in the last one year.
While demand is another major headwind the industry is grappling with, more proof that the company is on to a steady growth path can help improve the long-term performance of the stock, which is down 20% in the last one year.

Power trading solutions company PTC India Ltd’s shares gained 1.65% on Monday, after the company reported a strong performance for the December quarter. It’s a turnaround of a kind, as volumes grew after four consecutive quarters of decline. They increased a decent 25.6% from a year ago, as long-term trading contracts with several electricity producers came into effect.

These long-term power trading contracts offer better margins, compared with the exchange-traded volumes. With PTC India seeing more such contracts getting commissioned in the last quarter, profitability and operating profit saw a rise. Margins expanded 20 basis points and Ebitda (earnings before interest, taxes, depreciation and amortization) increased almost 15%. A basis point is 0.01%.

What’s more, the volume growth may continue to be good in the current quarter too. Deepak Amitabh, chairman and managing director of PTC India, is confident the volumes will cross 40 billion units in the current fiscal year.

In fiscal 2014-15, PTC India sold 37 billion units of electricity. If indeed volumes cross 40 billion units, then annual growth and fourth quarter growth translates to 7.7% and 17%, respectively. That’s better than the year-ago increases. The volume growth rate for the fiscal year 2015-16, although in single digits, is commendable considering the overall sluggishness in the Indian electricity market. Power generation this fiscal year till the end of January was up just 4.6%.

Further, PTC India expects the growth to be better next year also, helped by commissioning of new projects. One such project is Teesta Urja Ltd. As Teesta and more thermal contracts come on stream, the management sees volumes crossing 45 billion units in two fiscal years. “Commissioning of projects like Teesta Urja (1,200MW), Moser Baer (361MW), DB Power (250MW), Maruti Clean (250MW) and TRN Energy (390MW) in FY17/18 will boost volume and margin, as all these capacities are tied up under long-term tariffs, where margin is higher,” Antique Stock Broking Pvt. Ltd said in a note.

The strong project and contract pipeline, however, does not guarantee linear growth in volumes. Commissioning of the Teesta Urja project is expected to begin only from the end of 2016-17, which means volume growth could be back-ended next year. The company continues to face transmission constraints, leading to loss of business. While demand is another major headwind the industry is grappling with, more proof that the company is on to a steady growth path can help improve the long-term performance of the stock, which is down 20% in the last one year.

The writer does not own shares in the above-mentioned companies.

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