Value
Investment Analysis Report
16th December 2016
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Company Snapshot
PTC India Limited (PTC) is a
holding company. The Company is engaged in the business of power and
investment. It is involved in the trading of electricity and offers power
trading solutions in India. Its segments include Power and Investment.
It offers business solutions
for generators, utilities, cross border solutions, PTC retail, project
financing, renewable energy, and energy efficiency and consultancy. It offers
PTC retail solutions to public sector undertakings (PSUs) and Central PSUs,
Corporates, Industrial Clients, Commercial Clients, and independent power
producers (IPPs) and captive power produces (CPPs). It offers facilitation of
power sale and purchase on power exchange, which include sale/purchase on day
ahead market (DAM) and sale/purchase on term ahead market (TAM). It offers Long
and Medium Term Sales, Short Term Sales and Power Banking Arrangements.
Through PTC India Financial
Services Limited, it offers debt financing on non-recourse or on limited
recourse basis.
Basic Filtering Criteria:
 |
| Picture shows Power Trading Corporation (PTC) Share's Market Snapshot |
Critical prima-facie Observations of Power Trading
Corporation Limited:
1.
PE Ratio: Power Trading
Corporation (PTC)’s PE Ratio is 8.85 is well below the maximum permitted 15 and
marginally lower than the Ideal for Indian conditions of 10 and therefore does
not pose any hurdle.
2.
Price to Book Value Ratio: At 0.66 is real bonanza! It means that the nets assets
(after deducting all liabilities) of PTC can still be bought at a discount of
34%!
3.
Distance from 52 week low: The current price of Rs.369.30 is 35.77% away from the 52
Week Low of Rs.56.05. On this parameter the scrip does not bestow any special
benefit – at the same time it is not too unfavorable too.
4.
Dividend Yield: A dividend yield
of 3.29% is decent.
A. Company Performance
Profitability Analysis – Vis-à-vis our Small Gem from the power sector, SJVN Limited
Profit and Loss
Account (Consolidated)
(Rs. in Crores)
|
PTC 2013-14
|
PTC
2015-16
|
SJVN 2015-16
|
Net
sales
|
12099.08
|
13985.36
|
2499.99
|
Cost of sales:
|
|||
Raw
Materials/ Purchases
|
11001.37
|
12356.16
|
0.00
|
Changes
in stocks of WIP & FG
|
17.73
|
0.00
|
0.00
|
Employee
Benefit Expenses
|
24.64
|
36.92
|
220.81
|
Other
expenses
|
232.10
|
227.49
|
230.81
|
Depreciation
|
8.54
|
10.09
|
677.51
|
Interest
|
223.70
|
532.78
|
209.47
|
Sub
Total
|
11508.08
|
13163.44
|
1338.60
|
Operating
profit after interest
|
591.00
|
821.92
|
1,161.39
|
Net
of other non-operating income/expenses
|
44.23
|
52.90
|
409.93
|
Profit Before Tax
|
635.23
|
874.82
|
1571.32
|
Prior Period Items
|
0.43
|
-0.01
|
0.00
|
Exceptional Items
|
-4.29
|
37.53
|
0.00
|
Final
PBT
|
639.09
|
837.30
|
1571.32
|
Provision
for taxes
|
192.16
|
250.92
|
296.78
|
Profit
After Tax (PAT)
|
446.93
|
586.38
|
1274.54
|
EBDITA
(Operating Profits)
|
823.24
|
1364.79
|
2048.37
|
EBDITA
(Operating Profits) %
|
6.80%
|
9.76%
|
81.94%
|
Depreciation
|
8.54
|
10.09
|
677.51
|
Interest
|
223.70
|
532.78
|
209.47
|
Interest
Cost to Sales - %
|
1.85%
|
3.81%
|
8.38%
|
EBT
|
591.00
|
821.92
|
1161.39
|
EBT
%
|
4.88%
|
5.88%
|
46.46%
|
Net
Non-Operating Income
|
44.23
|
52.90
|
409.93
|
FINAL
PBT
|
639.09
|
837.30
|
1,571.32
|
FINAL PBT %
|
5.28%
|
5.99%
|
62.85%
|
Provision
for taxes
|
192.16
|
250.92
|
296.78
|
PAT
|
446.93
|
586.38
|
1274.54
|
PAT
%
|
3.69%
|
4.19%
|
50.98%
|
Remarks:
1.
PTC’s EBDITA margin
is poor compared to what SJVN is earning. It is quite understandable. While PTC
is merely a trading company in power, SJVN is a major hydroelectric power
producer.
2.
Interest cost as a
percentage of sales of PTC has doubled since FY 2013-14. Why? Because PTC is
unable to generate positive operating cash flows and hence is resorting to
borrowing. If this trend continues, PTC’s meager profits will totally
disappear.
3.
Net non-operating
income constitutes just 7.48% of operating profits (EBT) compared to the 35.30%
of SJVN, which means that company will NOT be able to maintain dividends if
operating income is affected.
4.
PAT margins are
humble compared to SJVN.
Balance Sheet Analysis:
Balance
Sheet (Consolidated)
(Rs. in Crores)
|
PTC 2013-14
|
PTC 2015-16
|
SJVN 2015-16
|
LIABILITIES
|
|||
Short-term
borrowings
|
1417.30
|
1407.62
|
--
|
Sundry
creditor (Trade)
|
1089.04
|
2010.12
|
17.44
|
Short
Term provisions
|
101.67
|
149.67
|
386.21
|
Other
Current Liabilities
|
221.44
|
765.88
|
513.53
|
Total
Current Liabilities
|
2,829.45
|
4,333.29
|
917.18
|
Minority
Interest
|
534.04
|
696.71
|
--
|
Term
loans
|
2352.30
|
4997.66
|
2503.54
|
Deferred
Payment Credits
|
18.51
|
--
|
--
|
Long
Term Provisions
|
31.37
|
65.81
|
89.52
|
Total
Term Liabilities
|
2,936.22
|
5,760.18
|
3,457.84
|
Total
Outside Liabilities (TOL)
|
5,765.67
|
10,093.47
|
4,375.02
|
Ordinary
share capital
|
296.01
|
296.01
|
4136.63
|
Reserves
& Surplus
|
2612.94
|
3123.41
|
6920.64
|
Net Worth
|
2,908.95
|
3,419.42
|
11,057.27
|
TOTAL
LIABILITIES
|
8,674.62
|
13,512.89
|
15,432.29
|
ASSETS
|
|||
Cash
and bank balances
|
616.78
|
221.98
|
3891.70
|
Investments
|
--
|
46.87
|
470.71
|
Receivables
|
2092.25
|
3227.87
|
1132.42
|
Inventory
|
--
|
--
|
38.65
|
Other
current assets
|
460.73
|
836.18
|
334.63
|
Total
Current Assets
|
3,216.63
|
4,756.74
|
5,397.40
|
Net Block
|
53.11
|
386.28
|
8833.18
|
Capital WIP
|
1.37
|
--
|
506.76
|
Total
Fixed Assets
|
54.48
|
386.28
|
9339.94
|
Investments
long-term
|
818.79
|
538.27
|
0.00
|
Long
term Loans & Advances
|
4544.56
|
7788.76
|
210.71
|
Deferred
Tax Asset
|
--
|
11.40
|
352.63
|
Other
non-current assets
|
39.23
|
29.54
|
125.36
|
Total
Other Non-Current Assets
|
5,402.58
|
8,367.97
|
688.70
|
Intangible
assets
|
--
|
--
|
6.25
|
TOTAL
ASSETS
|
8,674.62
|
13,512.89
|
15,432.29
|
Tangible Net Worth (TNW)
|
2,908.02
|
3,417.52
|
11,051.02
|
Current
Ratio
|
1.14
|
1.10
|
5.88
|
Total
Outside Liabilities/ Tangible Net Worth (TOL/ TNW)
|
1.98
|
2.95
|
0.40
|
Total
Term Liabilities/Tangible Net Worth
|
1.01
|
1.69
|
0.31
|
Highlights:
1. PTC
has significantly higher borrowings than SJVN. Further PTC’s borrowings are
increasing on the back of negative operating cash flows and this is dangerous
for PTC.
2. Current
ratio of PTC at 1.1 as against minimum recommended 2 is poor and it has
deteriorated from the previous 1.14.
3. TOL/
TNW ratio of PTC is just below the stipulated maximum 3.
4. Long-term
Deb-Equity ratio is also significantly more than the recommended not more than
1.
Cash Flow Analysis:
Power Trading Corporation Limited.
Cash Flow Statement
(Rs. in Crores)
|
PTC 2013-14
|
PTC 2015-16
|
SJVN 2015-16
|
Net Cash flows fom
operating activities
|
-1849.18
|
-1246.42
|
2200.75
|
Net
Investment in Fixed Assets
|
-8.60
|
-347.97
|
-753.97
|
Investment
in subsidiaries
|
2.54
|
||
Sale/
(purchase) investments and deposits
|
-387.88
|
205.47
|
|
Interest
dividend income income earned
|
36.25
|
34.97
|
277.55
|
Net Cash Flows from
Investing activities
|
-360.23
|
-107.53
|
-473.88
|
Repayment
of Borrowings
|
-185.73
|
-171.26
|
|
Interest
and finance charges paid
|
-191.96
|
-472.40
|
-74.55
|
Proceeds
from borrowings
|
2269.46
|
2047.94
|
76.75
|
Dividend
including dividend tax
|
-65.92
|
-105.38
|
-523.68
|
Net Cash Flows from
Financing Activities
|
2011.58
|
1284.43
|
-692.74
|
Net Increase/
Decrease in Cash for the year
|
-197.83
|
-69.52
|
1034.13
|
Highlights:
PTC is
generating negative cash flows from
its operations. In order refill the leakage, it is resorting to borrowings both
short-term as well as long-term, in turn pushing-up the interest costs. This is
a vicious cycle. PTC also can do little, as it is merely a trading company with
limited margins.
Even though
the dividend yield is decent, PTC appears to be paying dividends out of
borrowings since operating cash flows are negative.
On the cash flows front PTC’s performance
is very poor.
Dividends
Distribution of net Profits
Let
us study the dividend distribution pattern of PTC:
Mar ' 16
|
Mar ' 15
|
Mar ' 14
|
Mar ' 13
|
|
Reported net profit (standalone)
|
233.61
|
203.10
|
251.23
|
128.74
|
Equity dividend
|
65.81
|
57.59
|
51.43
|
39.31
|
Dividend tax
|
8.19
|
7.53
|
7.77
|
8.05
|
Retained earnings
|
22.23%
|
19.45%
|
17.37%
|
13.28%
|
Company is striving to increase the
percentage of net profits distributed as dividend.
So,
on this count company performance is just all right, even though the
possibility of sustaining dividends is looking doubtful in the face of negative
operating cash flows, increased borrowings and borrowing costs.
Uninterrupted Dividend Payment History
Year
|
Dividend (% of Face Value of
Share)
|
2016
|
25%
|
2015
|
22%
|
2014
|
20%
|
2013
|
16%
|
2012
|
15%
|
2011
|
15%
|
2010
|
12%
|
2009
|
12%
|
2008
|
10%
|
2007
|
10%
|
2006
|
10%
|
2005
|
8%
|
2004
|
8%
|
The
above table shows uninterrupted dividend payment for the last 13 years.
On the uninterrupted dividends payment front Power Trading
Corporation has an excellent track record.
Dividend Yield:
Dividend
Yield is a combination of both the company’s dividend policy and performance as
well as market condition. A dividend yield of 3.29% is decent, but this lower
yield is partly on account of price rise of the share since August 2016 and
modest profits of the company.
Five-year price graph:
 |
| Graph showing Power Trading Corporation (PTC) share price movement in the last five years |
From
the graph we can see that the market has been on a roller coaster ride. Since
21st August 2015 the price has been climbing from Rs.52 to the
present Rs.76.10, an increase of 27% in one year and three months.
In conclusion the five year price graph of Power Trading
Corporation shows that presently the share is it’s 52 week high and therefore not any
favourable condition.
Five years returns (price rise):
 |
| Table showing Power Trading Corporation (PTC) Share price return (rise) in the last five years |
The
five years return of PTC share of
77.60% indicates that the price of the share has appreciated significantly in
the past five years.
Therefore the market condition under this parameter
too is not very favourable.
Final Conclusions:
- The above brief analysis shows that Power Trading Corporation’s prospects are moderate. While there is plenty of scope for growth in sales the profits will always be limited on account of trading business model.
- The EBDITA, EBT and PAT margins are modest to poor even though and the company is consistently profitable for many years into the past.
- Balance sheet and all its ratios show weakness.
- Borrowings and interest costs are increasing
- Free cash flows are negative.
- PE Ratio of 8.85 is in the comfort zone.
- Price to Book Value Ratio (P2BV) of 0.66 gives a very attractive opportunity to buy the assets of the company at a discount of 34%.
- The market condition parameters of five-year price graph and distance from 52 Week low and five year returns do not favour much.
- Though the company is distributing a reasonably good proportion of the profits as dividends, the high market price has pulled down the dividend yield.
Final Investment Advice:
- Power Trading Corporation has a disadvantageous trading business model that limits profitability.
- Balance Sheet and Cash Flows show inherent weakness.
- Price to Book Value is very attractive.
- Unfortunately PTC cannot qualify to be included in a value investor’s portfolio.
- Please DO NOT BUY the share.
Post Disclaimer: Opinions expressed here are the author’s personal opinions. Market conditions have a great bearing on many end results discussed in this report. No disrespect is intended towards the company, it’s management. Investors are advised not rely blindly on the opinions expressed herein but to exercise their own judgment. Neither the author nor the blog shall be responsible for any loss suffered by either acting or not acting based on the opinions expressed herein.