PTC India volumes to improve, but increasing competition could soften margins

Financial woes at the state electricity boards (SEBs) continue to take their toll on PTC India Ltd. In the March quarter, the company’s income from operations fell 28.3% as the beleaguered SEBs bought less electricity.

Compared with fourth quarter 2010-11, electricity sales fell 15.6% in January-March this year. On a sequential basis, volumes dropped 4%. This is the second consecutive quarter that the company has seen a contraction in volumes.

To match the lower offtake, the company has cut purchases. Expenses during the quarter fell 28.7% to Rs1,412.5 crore. Expenditure as a percentage of operating income eased from 98.4% in fourth quarter of 2010-11 to 97.8% in January-March this year.

The 50 basis points contraction in operating costs, though, has done little help to the company. One basis point is one-hundredth of a percentage point. Net profits contracted 8.4% to Rs30.1 crore as interest costs zoomed from a miniscule Rs6.7 lakh in fourth quarter 2010-11 to Rs6.4 crore in January-March this year.

Two variables will play a determining role on the company’s finances. First and foremost are the receivables. Payment delays from the cash-strapped SEBs have imposed severe financial stress on the company. Last fiscal cash assets fell 77% and trade receivables jumped 158% to Rs2,588 crore. The delayed payments sent the interest costs higher and forced the company to reduce electricity sales to the defaulting SEBs.

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The situation is improving, but at a slow pace. The Tamil Nadu SEB has begun payments and the company is expecting it to clear the dues in three months. The Uttar Pradesh SEB, meanwhile, is yet to chalk out a repayment plan. The Tamil Nadu and Uttar Pradesh SEBs together owe around Rs1,200 crore to PTC India.

“Hopefully, the UP dues will also be cleared but UP is constrained to give timeline because right now the board is operating under deficit situation,” T.N. Thakur, chairman and managing director of PTC India said in an email.

Resumption of payments will help the company begin electricity sales to the defaulting states and arrest the fall in volumes. “Now they (Tamil Nadu) are asking us to supply power and we are working out an arrangement with them through which we will begin to supply them power,” says Thakur.

The other important variable is the margins. The company is facing increasing competition from the trading arms of the independent power producers like NTPC Ltd, Tata Power Co. Ltd and JSW Energy Ltd. Even though PTC India continues to have an edge in the long-term contracts, high competition in the short duration contracts could soften the margins.

“We expect competition to intensify in trading business, which would keep margins under pressure. Therefore, we reduce our trading margin estimate from 6 paise a unit to 5.1 paise per unit.” Rohit Singh of IDBI Capital Market Services Ltd said in a note.

After losing 69% in 2011, the stock rallied 42% since the beginning of this year. The stock rose on expectations that the recent tariff hikes by the SEBs will help them clear dues and step up the electricity purchases. But any further slippages on the repayment schedules could reverse the performance.

Graphic by Ahmed Raza Khan/Mint

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