PTC: Thinking for the long term
Shobhana Subramanian / Mumbai August 13, 2009, 0:51 IST

The company continues to do well even as it tries to reduce its dependence on short-term trading.

The reported exit of four big shareholders, NTPC, NHPC, Power Grid Corporation and Power Finance Corporation, should not materially impact Power Trading Corporation’s (PTC’s) business. As the management points out, NTPC has its own trading arm and, therefore, doesn’t really supply PTC with power that it can sell.

However, today, PTC is viewed as a public sector company given that its main shareholders are PSUs. If that changes, it’s possible that regulators may treat the company quite differently. Meanwhile, PTC, which has a market share of about 50 per cent, did fairly well in the June 2009 quarter with trading volumes up 56 per cent compared with the June 2008 quarter. Since it traded more on a spot basis, average realisations went up 26 per cent to Rs 5.64 per unit.

Consequently, net revenues grew 97.2 per cent year-on-year to Rs 2,350 crore. However, even though expenses rose by almost the same level due to a 26 per cent rise in the cost of power purchased, the operating margin rose to 0.66 per cent. That pushed up the operating profit by 164 per cent to Rs 15.6 crore. Due to high other income, the Rs 500 crore raised through the recent qualified institutional placement issue, the profit after tax rose 76 per cent.

Over the past years, PTC has been altering its business model; it is attempting to enter into long-term contracts and reducing its dependence on short-term trading. Industry watchers believe the benefits of long-term power purchase agreements (PPAs) should come through, though there are concerns that developers may not always honour PPAs with PTC.

For instance, there was some litigation with Lanco relating to the Pathadi-I plant. PTC hopes to trade around 842 Mw, or around 5,000 million units, in the current year and as much as 5,000 Mw in a couple of years. Meanwhile, short-term rates for power have shot up over the past three weeks, which is possibly why the PTC stock has been doing well in an otherwise dull market. At Rs 90, however, the stock trades at close to 20 times estimated 2009-10 earnings and factors in near-term upsides.