PTC India Limited (PTC) Earnings Call Transcript & Summary

Thank you very much. Good evening, ladies and gentlemen. On behalf of management team of PTC, I welcome you all to the conference call for Q3 2021 results of the company. The results were declared on Friday evening. Today, let me introduce the people who are sitting with me. Mr. Rajib Mishra, Director, Marketing and Business Development, he's there. Dr. Ajit Kumar, who is my Director, Commercial and Operation, he's there. Mr. Rajiv Malhotra, is my Executive Director and CRO, he is there. Mr. Pankaj Goel, who is the CFO of the company, he's there. And Mr. Anand Kumar, who looks after the investment -- the Investor Relationship Corporate Communications part. So we had declared the results, and we had also sent our press release, which I'm sure you all must have seen, where we have seen an all-around volume growth, led by mostly by short-term trades. So in my view, overall, it has been a good quarter. And if we go back to March 12, 2020, and when the lockdowns was announced, and when we are sitting in that by March end and April beginning 2020, we could not have realized that 9 months is going be like that. So from that perspective, I'm saying a better 9 months than what we would have expected sitting in April 2020. But it still had not like to use the expression business as usual for this quarter just yet. Now to understand the things which are happening, especially in this -- since the time the COVID impacted the demand and supply side, we have to understand that the numbers, the robust numbers which we are seeing in 9 months of this quarter, especially, and which may continue for this quarter also and the growth patterns, which we are seeing, are a result of transitional impact. When I say transition, which we have seen at various points during this last 9 months, due to economic activity, was coming practically to a standstill and then gradually reviving a step-up revival, which we have seen. Now obviously, when such type of transition happens, that had led to changes in the demand patterns itself. And when the demand in electricity, as we know, has to be produced and consumed simultaneously, so the ability of participants on the supply side also do respond to this shifting demand or fluctuating demand patterns in the expected time lines. So the demand supply mismatches have led to a growth in the opportunity for traded power. And this transitioned more than a growth in absolute demand, increases our space for trading. And that is what we have always been maintaining that lot of time questions have been asked by multiple investors or analysts over last 10 years or so, that exchanges when we have created, that are we creating your own competition? And our answer has always been that platform and market makers like us work in complementaries. And especially, this becomes more important that means available for addressing this last month -- this market especially in 9 months became more granular with the introduction of real-time markets. From June 1, real-time market was introduced. In 9 months, as I understand, the total volume which has gone through RTM is about 6 -- 0.6 or some odd billion units. And PTC has been doing, in the last 9 months, more than 40%, 45% of this whole thing. The exact figures maybe slightly more also, but I'm saying 40% share of this RTM market, PTC was able to capture. So as I said, more and more granularity, more and more market-based reforms, which we are there. And as I was speaking to you, just now the power market regulation 2022 -- 2020 has also been announced just now. So which we believe is going to lead to more depth in the market. And PTC, being the largest trader, which we approved many times for the last -- more than 15 years of being listed, is going to reap the benefit of that. So one more thing which I just wanted to say that we have always maintained that anyone who enters into this, especially in this space, either as a trader or as an investor, should not be looking at quarter-to-quarter, but he has to be more long-ish in his approach because these are ultimately energy. So it's a consumable. But ultimately, it's related to infra, and infra things don't happen in a quarter-to-quarter basis, which is -- so whether the change in pattern, change in demand shift patterns, et cetera, obviously, it takes some time before we know that this is not only transitional, it is going to be for the long haul. So today, it becomes very difficult for us to make such type of statement. And other than that, we have seen that the 9-month ending also, that our volumes have crossed more than 60 billion unit figures. So we should be doing this -- we should be closing this year with a much better than performance in the volumes there -- in the volumes than we had done in the last year. And then there are financial numbers, which obviously will be spoken to by my -- in the presentation by my CFO. So with these opening remarks, I hand over my mic to the CFO, to make a detailed presentation, and I'm sure the presentation must have been put up on our website and has been mailed to all the participants. So -- and then we'd like to take all the question and answers later. Thank you.

Thank you, sir. Good afternoon, everybody. Now I will take you through the financial results of PTC India Limited for the quarter ended and 9 months ended December 20. First, I will go through the quarterly results. The volume has increased by 41% to 18.6 billion units from 13.2 billion units. Total operational income in line has also increased by 52% to INR 186 crores from INR 122 crores. Profit before tax has increased by 93% to INR 152 crores from INR 79 crores. Profit after tax has also increased by 94% to INR 113 crores from INR 58 crore. Total comprehensive income has also increased by 94% to INR 113 crore from INR 58 crore. Earnings per share for the quarter stood at INR 3.82 in comparison to INR 1.97 per share. Now I'll go through the 9 months ended results. Volume has increased by 17% to 63.8 billion units from 54.3 billion units. Total operational income has increased by 26% to INR 526 crores from INR 418 crore. Profit before tax has increased by 37% to INR 459 crores from INR 336 crores. Profit after tax has also increased by 36% to INR 347 crores from INR 256 crores. Total other comprehensive income has also increased by 36% to INR 347 crore from INR 256 crore. Earnings per share for the 9 months stood at INR 11.72 in comparison to INR 8.65 per share. Now I'll go through the consolidated results for, first, for the quarter and then for the 9 months. For the quarter, volume has increased by 41% to 18.7 million units from 13.2 million units. Profit before tax has increased by 41% to INR 158 crores from INR 112 crore. Profit after tax has increased by 80% to INR 114 crores from INR 63 crore. Total other comprehensive income has increased by 83% to INR 115 crores from INR 63 crore. Earnings per share for the quarter stood at INR 3.61 in comparison to INR 1.64 per share. For the 9 months ended December '20, volume has increased by 17% to 64.2 billion units from 54.8 BUs. Profit before tax has increased by 11% to INR 566 crore from INR 509 crore. Profit after tax has increased by 14% to INR 408 crore from INR 358 crores. Total other comprehensive income has also increased by 14% to INR 407 crore from INR 357 crores. Earnings per share for the 9 months stood at INR 12.84 in comparison to INR 10.88 per share. Thank you.

[Operator Instructions] The first question is from the line of Mohit Kumar from DAM Capital.

Hello? Am I audible?

Yes, sir, we can hear you.

Yes. Yes. 2 question, sir. First, is it possible to comment on the new power market company regulations? I'm not sure whether I've gone through it, but is it possible to something which you can comment or is it too early?

It looks like -- we've lost the line for the management. We will request the participant to stay connected while we join them back in the call. [Technical Difficulty] Thank you for patiently waiting. We have the management reconnected. We would request Mohit to please repeat the question.

My first question, sir, on the -- your initial comments on the power market regulations and how does it impact us in case you have gone through the document, otherwise, I'll skip that?

It has just come. It's fresh on the press. So we have to go through the documents, and then only we'll be able to comment.

Sure, sir, sure. Sir, what is the impact of Bangladesh Meenakshi volume on EBITDA. Can you please quantify that in the current quarter?

Yes. Yes. Mohit, Bangladesh Quantum, 200-megawatt was being supplied for the entire financial year. Initial for 9 months, it was from alternate source. And from 1st of January, it is now supplied from Meenakshi Energy.

And is it possible to quantify the impact on the quarter on the EBITDA rough -- if you don't know have the exact number, i.e., the percentage terms, otherwise?

The volume of energy changes will remain same. But of course, from the alternative source, we have to do analysis and we'll come back to you.

Okay, sir. Can be on this -- sir, on the -- on the long-term volume, I think we are done with all the contacts, right? There's nothing pending as of now?

No. I think...

No. We just start and contribute incrementally.

See we can start and contribute incrementally. But as you are also aware that there was a medium-term, 3-year contract, the bids have been called for and after that, COVID has happened. So we can see the revival happening now, and how much expect out of this 2,500 in a couple of months, we will come back to you. So that will add another dimension of the trading volume.

Right, right. Okay. And just something I comment on the divestment at where are we right now? Is there a time line which you can provide us, some kind of tentative time line?

See, the divestment process is -- I mean, I'll not say divestment, dilution process because dilution can be from 0% to 100%, whatever it is there. We have 2 subsidiary companies, PTC Energy Limited and PTC Financial Services. And both the processes are going on, and they are taking some time for -- especially if you see, in spite of the good investor interest, there is a lag due to uncertainties in the business environment, which I think -- now this budget was a very bold budget, and it has really clarified a lot of things especially relating to infrastructure, which I see will give a good traction. And the other one, PTC Energy Limited, there also a lot of interests are there. But the majority of AP renewable tariff issues had an overhang on the investor views on a portfolio of assets that otherwise had really good value. So both are going on, and I hope that in the next financial year, both should get certified.

The next question is from the line of Shailendra Mundra from Veba Financial LLP.

Hello, sir. Congratulations for excellent set of results. I would like to know your main growth from this -- for this quarter has come from short-term trading. So what is your strategy for building up volume on the long- and medium-term side?

As I stated earlier, the short-term, the volumes, et cetera, where we have seen this quarter increasing going up to 57%. Normally, 50-50 was the short-term and this thing. Because when I talked about the mismatches which I explained in the beginning, obviously, that has led to a high short-term volumes also coming to our portfolio and will continue to come in this quarter also. On the long-term and medium term, because long term, medium term is -- anything more than short term is considered to be a long term. So there, as I said, we are already looking at a portfolio of building up PPA and PSA up to 2,500 megawatts. As I said, there was no demand for quite a couple of months. But now with the demand now picking up in this post this January -- peak of 30th January, 185,000 or 189,000 megawatts when we saw, for the demand, we are really seeing picking up in states and prices are also coming up now, so I think next couple of months, we should be able to tie up as much as possible, which will give us a net surge in the volumes other than cost of volumes, which will continue to be coming to our portfolio as and when the market deepens.

Okay. So I was -- I wanted to understand your vision for more longer-term, 5 to 10 years' time frame. So do you see relevance of our company during that time frame? And how you can grow during that time frame? Can you -- do you see long-term and medium-term trading volume to go up by 3, 4 or 5x, let's say, over a decade?

There is no doubt about 2 things basically. One is, if you recollect, I mean, I don't know what is the age profile which you belong to because I belong to that age profile when I've seen 1990s, when Bombay Stock Exchange was only exchange and physical things were being done. And the moment it was shifted to electronic post Harshad Mehta and Ketan Parekh, et cetera, lot of people may have thought what will now the intermediaries do. But yes, today it is 2021, there is always a need for an intermediary. And PTC needs as an intermediary, as I said, because we -- once you are the master of the mismatches and the time frame will become more and more granular and more and more granular and rather and technology is going to aid anyone, whether you are a direct participant or through a market participant. Now short term, long term, as I say, this happens in a developing nation, which we are still not developed nation, which will, as you said, 10 years down the line when the supply is also, let's say, 400 gigawatts and no further incremental supply is not much as we see in Europe, et cetera, and the U.S., the trading market offers you such opportunities, which you can think of today. So I can't quantify it is only 5x or 10x, that I can't quantify, but looking at the international experiences, now that itself has to be multiple or whatever we are doing or anyone else, who will be the master of the trading. If you adopt -- keep adopting the technology and keep ensuring that the policies are also going in the right direction, there doesn't seem to be any this thing for net -- dearth of work till 2030, at least I can say.

Okay. So I have a follow-up question. So looking at our business, it's basically trading business with low margins. And my main concern is the receivables management, the DSOs have been going up recently. So how do you -- how are you managing the receivables and the risk of defaults, et cetera?

See, in our 20 years of the trading, which we have done, there has been 0 default. Because if the defaults are done, then obviously, much before PTC is a very small company, PFC, REC, and the larger central generating stations, which are there, I'm sure you must be getting the views from them also. Other than that, I think our volumes has increased by 9 months, which has increased by 17% or so. And I think INR 2,400 crores was the working capital requirement as on March 31, 2020. And it remains of the similar times. So volumes, if they keep increasing, obviously some incremental working capital we will be requiring. Now with the Atmanirbhar, the times one came, and we hope that in a couple of months, times two should also be given. In the meantime, the Government of India has introduced these in traditional bills, et cetera, the amendment bills and to the policy intervention, et cetera, they are also ensuring that the utilities keep improving their balance sheet. Obviously, it will not happen in the next 6 months or 1 year time, but it will take a couple of years. There is no doubt about that. But things will keep improving. And we believe that receivable management, coupled with the prudent management which we do a play on margin, you use the word short term, low margin, but low-margin is also associated with same contract, our rebate is also part of the same contract. So we are always continuously evaluating each and every deal, every day, whatever payments we are doing and see how the benefits can be maximized for the shareholders of PTC. And the fall risk at least till today, we have no concern on such as our default risk, delays, et cetera, and that's the reason you have seen the working capital requirement, et cetera. But go to an ideal scenario, when there is no delays, obviously, the whole model, et cetera, will undergoing changes, the requirement of money on the balance sheet of PTC and an equity to give help on this working capital, because you asked a very long 5- to 10-year period you're asking, will always be more whatever we can do to return the money to the shareholders as and when the scenario concretely changes, the calls will be taken at that point of time.

Okay, sir. Sir, what is the aging profile of receivables as of now?

Yes. Yes, I'll tell you. Yes, you know that we always say that we always take the, as Chairman sir has explained that we measure ourselves in terms of the net working capital. Net working capital means, the debtor minus the creditor, means that how much exposure we have taken on the counterparty. So we go by this analogy. So we have a net exposure of INR 2,500 crores as on the December. And out of that, if you see that more than 6 months exposure is around INR 368 crore, and out of this INR 368 crore in, if there are 2 parties for which we have more than 180 days outstanding, that is UP around INR 100 crores and the Bihar is around INR 138 crores. And out of this INR 100 crores also of UP, we get a bit discounted. And so there is very low outspending as far as the UP is concerned for more than 180 days also.

And see, Bihar, we have seen for the last 20 years pattern which we have seen, that they always continue making payment, along with the compensatory payment which we have to do on the account of delays, et cetera. So we have a very good track record of these states.

Okay. So how much is your exposure to the private parties?

Almost 0. You can say almost 0 as of today. Yes. Because from the private parties, generally, we take advance for trading on exchange. So they give us advance, then we trade on their behalf.

And have you introduced the system of selling with an LC?

Whatever the regulations we have asked, we are compliant with the regulation.

The next question is from the line of Krishna Kumar, an individual investor.

Am I audible?

Yes.

Yes. What is your net margin, excluding rebates and surcharges?

Yes. Just a minute. 4.4%, 4.4%.

4.4%. It was -- it was around the 3-point something, right, last quarter?

Yes, it's 3.68% in the last quarter, last December '19.

Okay. And on the divestment target, is anything progressing now? Or has it come to a standstill?

Sorry?

Yes. On the divestment and the valuation point of PFS, is anything progressing or everything has come to a standstill now owing to some other developments?

No, no. That's what -- if you recollect, I said the divestment process is taking some time yet. We would have liked to see more progress and a definite outcome by now. However, despite a good investor interest, there is a lag due to uncertainties in the business environment. And infrastructure finance, in particular, has seen a lot of uncertainty during the last -- for the last 1 year, but we are optimistic that the budget and its directional guidance, BFI, et cetera, is changing that and that we'll see visible outcome coming by the middle of this calendar year.

Okay. And as regarding your future, going forward, the new power exchanges are coming, so could you be a contributor to the volume to power exchanges? Or should you be competitor to power exchanges?

As I said in my statement earlier, that we are the market makers, and we -- and there is never -- we never have seen, and this is not a statement today, it has been there since to -- because we were the first promoters also in India of energy, first power exchange was also co-promoted by us because we have seen that there is a complementarity between a trading platform and the intermediaries or market makers. As you see, NSE, BSE is never a competitor to Edelweiss Finance or to any such type. I'm taking a name, not for the sake of it, but they are all complementing each other. So the same thing happens in this market also. These are electronic platforms, more efficient platform, more granular, more time-wise, you keep reducing the time cycle, more debt will come into the system.

The next question is from the line of Sandeep Rai from Oculus Capital.

Yes. I just have one question. Can you give any update on power trading exchange? And what would be the restriction on you being the largest trader? And what is the rationale for the same?

Just now, I think it is still under regulatory approval. So they have given the notices, et cetera, the plan area where PTC, BFC and ICIC Bank have created the same. So we are still -- once we get the final approval, then only the activity will start, and our strategy will unfold only then.

Okay. And regarding the restrictions or on anything?

The registration, et cetera...

The process what the Chairman has explained, the registration process is on CERC. They have given a notification in the newspaper yesterday. And as per their time line, we'll get the registration very soon.

The next question is from the line of Vikas Kumar from Creative Ideas.

I have some -- I have few queries to the CFO as well as to Chairman, if you can elaborate. I've seen that as has been explained, number of units or the volume has increased consistently. And in the last quarter, there was a tremendous increase. But what is surprising is that the revenue from operations are down by INR 28.7 crores, if I'm not wrong?

See, revenue from -- revenue is units multiplied by the value of that unit. So suppose, I do 100 units. And if it's cost the INR 3, same 100 units will cost me INR 300. And if it cost INR 5, the same revenue from that will be INR 500. So revenue is something which we are -- we should be -- we should look at it in a very agnostic way. What we should look is a gross operating margin, total operating margin, sale minus purchase and plus anything to do with the contract, whether it is rebate and surcharge. So till the time, that thing is in comfort zone -- because revenue will be on right at that point in time. Because suppose this time, we have done 57% in short term. Earlier, we were doing 50% in short term. And the value, let's say, was INR 5 per unit and this time it was INR 4 per unit, obviously, the total -- the top line will be different [indiscernible] from a generator perspective, top line becomes very important.

No, sir. But my point of view was that if the operations revenues are down, that means we are -- we have -- as per the notes of the auditor...

Operational revenues are down.

Sir, it is -- operational revenues are down. It is only the other operating revenues, which is surcharge income that is down now by INR 48 crore. So overall, revenues were down from last year by INR 28.7 crores. It is just -- is it because of the surcharge income that -- which is INR 48 crore -- above INR 48 crores is surcharge income.

Yes. I'll tell you. I'll tell you. no problem.

Yes. In the meantime, let him find out the figures, et cetera, but please understand, see, there are type of -- I don't want to get into, like you can have one-to-one discussion with me or with my marketing team later on, that is what is PTC's expertise. We create the structure. So the structure may have a higher-margin or a very small margin, along with the surcharges. And whatever is more beneficial to us, we structure the product accordingly, which is accepted in the market. So there are multiple variations, which go in every surcharge. See, long-term surcharge is different. Short-term exchanges surcharge may be different. It may be linked to this thing or it may be de-linked. So every transaction is so different, so we cannot make a general statement that surcharge is not a part of this thing. So you -- I mean, this is what I understand. But as CFO, you can complement that.

Yes. Actually, if you will analyze the result, yes, as Chairman was saying, that if you see sale minus purchase, and into that, you add other income, which is generated out of the contract like rebate, etc. and we have a small consistency income also. So the total operational income has increased from INR 122 crore to INR 185 crore for the quarter ended. And for 9 months, it has increased from INR 417 crore to INR 525 crore. This is the extract from the published results actually.

Sir, I agree with you. I agree with you. The only point only point I'm referring to is that the regular revenue is from the operational income. Surcharge is always a separate part. Surcharge is if somebody has delayed the payment, it is not because of the regular income. So that cannot be a consistency. Consistency can be either in terms of increasing volume or it can be increase of margin. And both the things -- volume increases there, but margin is down. That is what I'm telling.

No, no. As regards to the operating margin, you will see the sale minus purchase, the total operating margins from the sale other than rebate and surcharge, as you are rightly saying, for the quarter, it has increased from INR 48 crore to INR 82 crore for the quarter. And for 9 months ending, it has increased from INR 198 crore to INR 282 crore sir.

Yes. Yes, sir. Now I'm coming to the other part. I'm coming to the other part now. I see in your figures that quarter-on-quarter basis, purchase is down by INR 69 crore, whereas -- sorry, purchase is down by INR 69 crore, while your revenues are down by INR 28.7 crores. That means what you are paying is far lesser than for what you are getting. So I guess there there's some mismatch here. So that means you're paying less for the purchases? You have gone down by INR 69 crores.

Yes. There is a rebate income also, which is included in the sales and purchase. Because on the rebate side, you will see that on the last quarter, we have earned INR 24 crore. But in this quarter, we've earned INR 30 crore. And in the December '19, we've earned INR 85 crore and in this quarter, we've earned around INR 70 crores. That depends on the payment pattern of PTC. So we'll explain you off line every scenario reconciled and we'll satisfy to your satisfaction. No problem at all. So we'll contact you offline.

Sir, my next question is finance cost for the current quarter for PTC India has gone down by half. That's very encouraging, from INR 14 crores, it has gone down to INR 7 crores. But that's -- same is not reflecting in the subsidiaries, especially in power PFS. There, the reduction is very marginal.

See, that's what I'm saying. You may hear all that -- because it's a separate company, listed company and their analyst contracts just took place last quarter. So I think the MD of PFS will be the most suitable person to answer these specific finance-related questions. PTC, we can answer anything whatever you are saying.

Right, sir. Regarding PTC now. The energy exchange that you are saying is still not operational and notifications are still being done. Now this is a scenario from quarter 1. June quarter when we had a con call, the investor meet, there also the same thing was there that energy exchange has been done, and it was supposed to start in 2 months. And you were supposed to reduce your stake from 25% in that to 5% as per the mandatory process of the regulator. As per Mr. Amitabh, you have told that it will be done within 2 months now. Please clarify.

Yes. As you are aware that Supreme Court closed the CERC from September till January end, number one. Number two, I have never said that I will be reducing to 5%. What happened, when we filed the -- when we filed, initially, there are 3 promoters, so that took time before the CERC. There was a long discussion over a period of time that we said that once we give approval in principle, then only the other investors will come in and people will get diluted to whatever the regulatory compliances are there, that 25%, 25%, maximum can hold, as per the regulations. Now we were advised by our advocate that this line of argument will work. But somehow, this did not appeal to the CERC and, CERC, therefore, gave a this thing, I think, in which month it was...

July end.

in July, end it said that in -- within 8 weeks, that within 2 months you come back to us. We understand what you are fit to be given, but all the objections of other exchanges, PXIL, IEX and other people they considered and still they give us a very clearcut standing order in July, that in 8 weeks' time, you come back with the regulatory, that's it. No one should hold more than 25%, which we did before the close of 8 weeks on 24th or 25th September. We went and filed the petition, giving the new shareholders who have joined and how the reduction, and PTC has got diluted from whatever 40% or something was there to the regulatory compliances. And that point of time, the Supreme Court for whatever reason put a hold on...

Put a hold on...

Put a hold on the earlier appointment of 2 of the members, which took 4 months, which the Government of India also could not do anything. Now after a lot of persuasion, for certain issues, if you want to talk to me offline, then you can talk to me offline, I can give you the figures and facts, et cetera. So obviously, the moment CERC has opened, they gave this order. Whatever first orders which they have given is that public notice issue [Foreign Language], which my Director explained to you sometime back that 45 days or 50 days notice is there. So nowhere, we have misstated anything. We work and regulators and Supreme Court, if I say, then I stand corrected, and I can also say in my dreams also, I said, yes, I know Supreme Court will listen to me and the regulators will listen to me, then I'll withdraw my statement if I have given that. Thank you, sir.

No, sir. That is not the point, sir. I never wanted to make you understand. That's not the point. I wanted to ask a clarification.

No issue. No issue.

Now coming to another point -- just coming to another point in energy exchange, kindly elaborate what IEF is already functioning, and they already have a 97% stake in energy exchanges and all the -- and now they are also coming out with gas exchange also as a subsidiary, what is the rationale for having another exchange and competing? And what is PTC going to be gain out of it?