PTL Enterprises Research Report

A Brief Value Investing Research Report
30th December 2016
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Company history and business:

PTL Enterprises Limited (PTL) is an associate company of  Apollo Tyres which acquired the manufacturing facility of  Premier Tyres and Tubes. Presently the manufacturing plant has been leased to Apollo Tyres and the company earns only a fixed lease rental income from its tyre plant.

The company has entered into healthcare business as the holding company of Artemis health Sciences, the company that operates popular hospitals under the brand Artemis. Today major revenue is derived only from the healthcare business and accrues to PTL only out of consolidation of the financial statements.

PTL is listed on the Bombay and Cochin stock exchanges.

Mr.Onkar S Kanar, Chairman and Promoter of Apollo Tyres is also the Chairman of PTL.

Artemis Health Sciences Company Logo which is the subsidiary of PTL Enterprises

Artemis Hospital operated by Artemis Health Sciences, a subsidiary of PTL Enterprises

Basic Filtering Criteria:

PTL Enterprises Share's Market Snapshot

	(Rs. Crore/ Rs. 10 million)	Minimum Required	Actual
1	Turnover	1000	449.83	Fail
2	Market Capitalization	1000	930.94	Fails Narrowly
3	Price to Earnings Ratio	Less than 15	32.68	Fail
4	Price to Book Value	Less than 1.5	1.22	Pass
5	Dividend Yield	4-5%	0.70%	Fail

As per basic value investing filtering criteria the PTL Enterprises’ share shall be dropped forth with as it passes only one out of the five filtering criteria, still we shall carry out a limited further evaluation the scrip.

A. Company Performance

Profitability Analysis

PTL Enterprises Ltd. Consolidated Profit & Loss Account                                                  (Rs. Crore/ Rs. 10 million)	Mar ' 16	Mar ' 15
Revenue from Operations	449.83	410.42
Cost of materials	105.34	99.91
Changes in Inventory of WIP and FG	1.06	-1.87
Employee Costs	74.28	65.77
Other Expenses	185.61	172.93
Total Operating Expenses	366.29	336.74
EBDITA	83.54	73.68
Depreciation	13.22	13.54
Finance Costs	13.82	20.06
Earnings Before Tax (EBT)	56.50	40.08
Non-Operating Income	8.30	4.22
Profit Before Tax (PBT)	64.80	44.30
Tax Expenses	19.29	10.77
Profit After Tax (PAT)	45.51	33.53
EBDITA Margin - % of Sales	18.57%	17.95%
Interest Cost - % of Sa;es	3.07%	4.89%
EBT Margin - % of Sales	12.56%	9.77%
PBT Margin - % of Sales	14.41%	10.79%
PAT Margin - % of Sales	10.12%	8.17%

Highlights:

EBDITA, EBT and PAT margins are decent but nothing to boast about.

Interest cost is significantly high.

On this parameter the company’s performance is satisfactory.

Balance Sheet Analysis

PTL Enterprises Ltd. Consolidated Balance Sheet                                 (Rs. Crore/ Rs. 10 million)	Mar ' 2016	Mar ' 2015
LIBILITIES
Share Capital	13.24	13.24
Reserves and Surplus	764.68	143.81
Total Net Worth	777.92	157.05
Long-term Borrowings	49.62	69.00
Other Long-term Liabilities	55.59	44.45
Long-term Provisions	20.24	19.09
Total Non-Current Liabilities	125.46	132.54
Short-term Borrowings	0.00	0.00
Trades Payable	63.41	56.50
Other Current Liabilities	44.03	71.47
Short-term Provisions	25.24	25.74
Total Current Liabilities	132.69	153.71
Total Liabilities	1036.07	443.30
ASSEST
Fixed Assets	839.71	251.97
Capital Work-in-Progress (CWIP)	4.01	1.79
Total Fixed Assets	843.72	253.76
Non-Current Investments	0.00	0.00
Deferred Tax Assets	5.95	5.77
Long-term Loans & Advances	19.87	16.03
Other Non-Current Assets	0.00	0.14
Total Non-Current Assets	25.82	21.94
Inventories	6.07	7.13
Trade Receivables	54.50	39.72
Cash & Cash Equivalents	10.09	28.48
Short-term Loans & Advances	17.54	16.38
Other Current Assets	4.30	1.88
Total Current Assets	92.50	93.60
Intangible assets	2.31	2.66
Goodwill on Consolidation	71.71	71.35
Total Intangible Assets	74.02	74.01
Total Assets	1036.06	443.30

Tangible Net Worth (TNW)	703.90	83.04
Total Outside Liabilities	1161.53	575.84
Current Ratio	0.70	0.61
Long-term Debt-Equity Ratio	0.16	0.84
Total Outside Liabilities/ Tangible Net Worth (TOL/ TNW)	1.65	6.93

Highlights:

1. Very low current ratio, below the minimum 2 indicates weak liquidity position but since the healthcare business is a cash business, companies tend to deliberately work on negative working capital – that is keeping the current assets low and current liabilities, mainly sundry creditors or trade payables high.
2. Long-term debt-equity ratio is good and well below the recommended less than one.
3. TOL/ TNW Ratio was very poor in the previous financial year but in 2016 was brought well below the stipulated not more than three.

On this parameter the company’s performance is not satisfactory.

Cash Flow Analysis:

PTL Enterprises Ltd. Consolidated Cash Flow Statement                                 (Rs. Crore/ Rs. 10 million)	Mar ' 2016	Mar ' 2015
Cash Flow Statement (Consolidated)
Net Cash from Operating Activities	65.99	79.15
Interest	-12.44	-18.80
Adjusted Net Operating Cash Flows (Free Cash Flows)	53.56	60.35
Purchase of Fixed Assets & CWIP	-23.29	-17.07
Proceeds from Sale of Fixed Aseets	2.43	0.45
Fixed Deposits	-0.24	4.79
Interest Received	3.30	1.99
Net Cash Used in Investing Activities	-17.80	-9.84
Long-term Borrowings	48.55	0.44
Repayment of Long-term Borrowings	-95.34	-35.48
Payment of Dividends	-7.97	-7.74
Proportion of free cash flows distributed as dividends	14.87%	12.83%
Others	0.00	-0.02
Net Cash Flow from Financing Activities	-54.75	-42.80
Net  (Decrease)/ Increase in Cash for the Year	-19.00	7.71

Highlights:

1. Small size of free cash flows generated.
2. Only a very small portion of free cash flows is being distributed as dividends. Perhaps this is because hospitals business is a capital intensive business and requires large sums of cash to be pumped in for creating new fixed assets.

On this parameter the company’s performance is not anything laudable.

Dividend Track Record

Year	Month	Dividend (%)
2016	May	50
2015	May	50
2014	May	50
2013	May	50
2012	May	50
2011	May	50
2010	May	25
2009	Apr	20
2008	May	15

Highlights:

1. Company has paid uninterrupted dividends at least for the last 9 years.
2. Nine years is not a very impressive dividend paying track record.

On this parameter the company’s performance is not very satisfactory.

Dividend Coverage from non-operating income:

	Mar ' 16	Mar ' 15	Mar ' 14	Mar ' 13	Mar ' 12
Dividend	6.62	6.62	6.62	6.62	6.62
Net Non-Operating Income	1.4	1.53	1.14	2.49	0.77
Dividend Coverage from Non-Operating Income	21.15%	23.11%	17.22%	37.61%	11.63%

The above table shows that around 20% of the dividends distributed by the company come out of non-operating income. Considering that the size of dividend payout itself is small portion of the consolidated (including the 10 times more larger Artemis’ contribution), the non-operating income coverage of dividends is nothing great.

On this parameter the company’s performance is not impressive.

B. Market Condition:

Price to Earnings Ratio: 

At the current market price of Rs.140.20 and Earnings Per Share (EPS) based on trailing quarter time periods method (TTM) the PE Ratio is 32.68, is well far above the recommended 15 and makes the scrip highly expensive, that too for a company delivering just average results.

Market condition on this parameter is not favourable.

Price to Book Value per Share: 

With a price to book value ratio at 1.22 the market condition is below the maximum permitted 1.5 and therefore is favourable.

Market condition on this parameter is favourable.

Dividend Yield:

Dividend yield of 0.70% is unacceptable. The low dividend payout by the company as well as the high price of the share are together responsible for this low dividend yield.

Market condition on this parameter is unfavourable.

Distance from 52 week high: 

The 52-week low for this share is Rs.71.70 and the distance from 52 week low is 95.54%. In fact the price very close to the 52-week high of Rs.150.

Market condition on this parameter is unfavourable.

Five-year price graph:

Picture shows the five-year price movement graph of PTL Enterprises

The price graph clearly shows the steep but unjustified market rally in the price of the scrip, making the share expensive to invest in today.

Five-year share price return:

Picture shows table of five-year price returns of PTL Enterprises Share

The five-year return (return measured by change in share price) is 347.92% in the last five years. This means that the share has already rallied about 3.5 times in the last five year and presently in a clearly unfavourable zone to buy this share.

On this parameter the market condition is not favourable.

C. Final Conclusions:

1. Company has diversified from tyres into healthcare.
2. The company is small-cap and therefore the risks associated with small-cap companies are inherent with this scrip. The turnover small, profit size is small and overall the balance sheet size is very small.
3. The profitability ratios are decent but do not justify the high premium market is paying for the scrip because of the healthcare business.
4. Balance Sheet ratios are acceptable other than the poor Current Ratio.
5. Annual Cash Flows generated are tiny.
6. PE Ratio is very high making the scrip highly expensive.
7. P2BV Ratio is acceptable.
8. Uninterrupted dividend paying track record is not long enough.
9. Dividend yield is unacceptably poor.
10. The five-year price graph and returns indicate unfavourable market conditions.

D. Final Investment Advice:

The company performance is just decent. Market has jacked-up the price of the share unjustifiably.

PTL Enterprises share is not worth investing at present. There are many companies available in the market right now that have better performance and available at much attractive valuations.

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.

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