Event: The CERC (Central Electricity Regulatory Authority) earlier today released draft regulations for power trading margins (open for public comments till 10th Nov.,2009).
Impact: We expect this to have a neutral to positive impact on all power trading companies.
The key take-away from these regulations is increase in margins for power traders, from the present flat rate of 4 paise per unit to 1.5% of the purchase price (subject to a maximum of 7 paise per unit – if sale price is more than Rs3 per unit, and maximum of 4 paise per unit – if sale price is less or equal to Rs3 per unit). These regulations are applicable for short-term trades, either through bi-lateral agreements or through any of the power exchanges.
PTC India (Not Rated)
We believe that these regulations, if finalised, would be positive for the company. PTC India is the largest power trader in India with a huge ~40% share. The company derives 44% of its volumes from short-term power trades (FY09: short term power traded volume: 6,064 mn units; total power traded volume is 13,825 mn units). The average selling price for the company was Rs4.60 per unit in FY09, and the average margin was 3.66 paise per unit. Given the company’s revenue and volume composition, we believe that these new regualations can only help the company increase its profitability as all the increases in the regulated margins would flow directly to the bottom-line.
Note: Our assumptions include increase in average trading margins from 3.66 paise per unit to 6.0 paise per unit, and a 20% growth in volumes. In Q1FY10 PTC India’s power traded volumes were up 56% YoY to 4,204 mn units, with average realisation at Rs5.64 per unit and margin at 5.21 paise / unit.
PTC current trades at ~25x the FY11 consensus EPS of Rs4.22. We expect these estimates to be upgraded by at least 60%-70%, indicating that even after the today’s run-up in the stock price, PTC India trades at ~14.8x FY11 estimated EPS.
The other players that could benefit include Tata Power.
0 comments ↓
There are no comments yet...Kick things off by filling out the form below.
You must log in to post a comment.