The business environment is slowly improving for PTC India Ltd. In the first week of December, the Madhya Pradesh electricity regulator approved a revised power-purchase agreement among PTC, MP Power Management Co. Ltd and Lanco Infratech Ltd for the sale of 300 megawatts (MW) from the Amarkantak unit 1 in Chhattisgarh. The approval will help PTC improve its volume mix.
Due to differences over prices, Lanco Infratech has been selling electricity from the unit in the merchant power market, resulting in volatile volumes for PTC. With trades now becoming long-term contracts, PTC can look forward to steady cash flows from Amarkantak.
“We believe this is positive for PTC as the 300MW volumes will now be a part of long-term trades and will generate secured cash flow going ahead as against current merchant sale which is erratic in nature,” Antique Stock Broking Ltd said in a note.
The outlook for long-term trading volumes is also improving. Over the past one-and-a-half years, 18 states have announced tariff hikes.
The fresh cash flows are expected to help the electricity boards step up purchases.
According to HSBC Global Research, three states, including Uttar Pradesh (UP), have called for bids to buy electricity. “Recent consumer tariff hikes across the country including UP’s have increased the appetite of the state to buy more power at a higher price. In particular, it would provide visibility on the long-term volume and margin outlook for companies such as PTC, among the lowest bidders,” it said in a note.
The trading business is expected to get a fillip from the second half of the next fiscal year. According to IIFL Institutional Equities, Power Grid Corp. of India Ltd is estimated to complete the south India and NEW (northern-eastern-western) grid connectivity by the second half of the next fiscal year starting April. The connectivity will ease grid constraints and help PTC sell more power to electricity-starved states. In the first half of the current fiscal year, the company lost business equivalent to 1.5 billion units of electricity due to grid constraints. As an estimated 1.8 gigawatts worth of new capacities come on stream, Tata Securities Ltd expects trading volumes to grow by 26% in 2013-14.
While the optimism is helping the stock outperform the broader markets, any visibility on recovery of dues from the Uttar Pradesh and Tamil Nadu state electricity boards will help the stock cement the gains. Both state electricity boards owe a total of Rs.830 crore to PTC.