Even in the dark world of power stocks, electricity trading and investing firm PTC India Ltd is a drag. Since the beginning of November, the stock has lost more one-third of its value. In comparison, the power index on BSE has fallen only 14.2%.
The key investor concern about PTC India is the ballooning receivables on its book. By the end of September, receivables surged to Rs 2,300 crore, more than double that of a year ago.
As a result, from a negative working capital position in the first half of the last fiscal year, the company’s working capital cycle has expanded to 58 days in the current year, calculates the India Infoline Group.
The problem of ballooning receivables is not going to go away soon as these are mainly delays in payments from customers. To meet the payment obligations to electricity generators, PTC India has to either draw funds from internal accruals or borrow from outside.
For now, it has a debt of Rs 350 crore, but cash balances have fallen by half in the first half of the fiscal to Rs 400 crore.
To be sure, the company is confident about containing the deteriorating working capital situation. “The event has to be seen from the perspective of delay in payments only and not as a default,” it said in a November statement. “Though payments have been delayed, they will come with surcharge (15% per annum) which will compensate the interest outflow on account of the loan taken.”
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The firm might eventually recover its dues, but investors are not so confident because the recovery is likely to be a long process. The most troublesome customers—Uttar Pradesh and Tamil Nadu—are nowhere close to reforming their electricity boards. They together constitute 48%, or Rs 1,100 crore, of PTC India’s outstanding debt.
Of the dues, 16% are from the Uttar Pradesh Power Corp. Ltd. With the state heading for elections, decisions about tariff hikes and a concerted repayment plan will not materialize until a new administration takes charge, which is a good six months away.
The Tamil Nadu Electricity Board, which owes around Rs 700 crore, has filed for a revision in electricity tariffs. While the regulator is expected to take a call, it will be a while before it clears the dues.
The receivables headache is estimated to last for a minimum of six months. Tamil Nadu has recently paid Rs 50 crore. But the amount is only 7% of the dues owed by the state’s board.
The burden of servicing the receivables is still on PTC India. IDBI Capital Market Services Ltd estimates this could cost the company as much as Rs 6 crore in the current quarter. No wonder, brokerages are cutting earnings estimates for the next fiscal that starts April 2012 by as much as 30%.
Graphic by Yogesh Kumar/Mint
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