>PTC INDIA (ICICI DIRECT)

Sitting on a goldmine…

PTC, India’s largest power trading solutions company, is strategically poised to take advantage of the upcoming opportunities in the evolving power arena. Ruled by deficit the demand for power trading continues to grow and PTC which enjoys 46.5% market share has traded over 13,825 MU in FY09 (a growth of ~40%) maintaining a mix of 56% short term trades (STT) and 44% long term trades (LTT). PTC is set to benefit with significant value unlocking from its investment book. With stakes in several big ticket power ventures, PTC is likely to add further muscle to its existing position. We initiate coverage on the stock with an OUTPERFORMER rating.

■ Power-Full growth on the horizon for Power trading market
Power trading continues to grow in the backdrop of power deficit scenario (which stands at 11.1% for FY09) and the expanding merchant capacities. Power trading has grown at a CAGR (FY02-FY09) of 52%and is expected to cloak a growth of 20% for the next 2 years. The development of energy exchanges, materialization of Long Term Power Purchase Agreements (LTPPA) should accentuate the growth prospects. PTC with the first mover advantage initiated ~11,200 MW of PPA which should aid it in reporting a CAGR (FY08-13E) volume growth of 37.7% from 9,889 MU in FY08 to 48,937 MU by FY13E.

■ Unlocking value in PTC Financial Services (PFS) through IPO
PFS holds eminent assets like IEX and stakes in 10 other power related projects (under execution at different stages) in its portfolio. In our bull case evaluation, we expect that the stake of PFS will be worth close to Rs 45 per share for PTC. With PTC and other reputed investment banks being the promoters of PFS, we derive comfort in believing that there will be a significant value unlocking through the expected IPO.

■ Valuations
At the current market price of Rs 82, the stock is trading at P/BV of 1.2x in FY09 and 1.2x in FY10E. With the visibility emerging on big ticket projects like Teesta HEP alongwith the probable unlocking of significant value, we believe that stock is undervalued and thus we initiate the coverage on the stock with an OUTPERFORMER rating.

To see full report: PTC INDIA