PTC (erstwhile Power Trading Corporation), the pioneer in power trading and market leader in short-term trading (STT) in India, is looking at transforming itself from a being a mere power trader to becoming an integrated player in the power sector.
The company is shifting focus to having 70:30 long-term trading (LTT) to STT portfolio. We believe that it would reach inflexion point by FY2010 with its 600MW Pathadi coal plant and 450MW Baglihar Hydro Electricity Plants (HEP) expected to be fully operational.
However, there are growing concerns regarding delays in the commencement of power projects amidst prevailing macro-economic slowdown scenario.
Further, the commencement of power exchanges is expected to exert competitive pressures on the company’s STT business. At Rs57, the stock is trading at 15.3x FY2009E and14.6x FY2010E earnings.
Considering the pros and cons of the company vis-à-vis its valuations, we Initiate Coverage on the stock with a NEUTRAL recommendation and SOTP-based fair value of Rs60.