PTC India Limited (PTC) Earnings Call Transcript & Summary

Good evening, ladies and gentlemen. Our interaction with you all started almost 17 years back when we did -- we got listed in April 2004 and the Q1 2005 was the first investor call. So just remembering that point of time. And on behalf of management team of PTC, I welcome you all once again to the conference call for Q1 of 2022 results of the company. As it is a custom, let me introduce you to my team members, Dr. Rajib Mishra, Director Marketing and Business Development.

Hello, everybody.

And Mr. Rajiv Malhotra, Executive Director and CRO; Mr. Harish Saran, who is Executive Director, Commercial and Operations; and Mr. Pankaj Goel, who is the Chief Financial Officer for the company. The Investor Relations team is represented by Sushant Chaturvedi and Mr. Anand Kumar. Obviously, both of you -- both of them are well known to the investors and analysts. Since last June, when we connected our annual analyst call, 2 important policy changes have been made. PMR 2020 has been notified and is effective from 15th August 2021, just 2, 3 days from now. And also an ambitious distribution turnaround of [ green ] of more than INR 3 lakh crores have been launched by central government to make the utilities sustainable. We have -- I just want to assure you that PTC is well prepared to engage with the ecosystem and benefit from the opportunities that the new market and the new market model brings. And these changes present the opportunity. Our testimony to this capability is the current quarter's performance which you have seen. I will later on, after some time, request Dr. Mishra to brief us on the business impact of all these changes. Now coming to the quarter. In this quarter business performance, PTC clocked a 21% increase in volume on the back of growth in short-term trades and exchange [ area ] segment. In spite of the severe impact of COVID-19 and limited restrictions on economic activities, the resilience of our business model helped us in clocking these growth in the numbers. The increased scheduling of power to states and our service-oriented business contributed in keeping the supply of electricity a vital lifeline of modern day economic and social activities flowing through this tough period. Obviously, because of prevailing uncertainty, the long term was not complete, but it was in past -- but it was very intense this [ hand ], the second wave. The volume was contributed more by the shorter term contracts. Bilateral trade in short term has made a substantial gain during this quarter. The other segments of trade, long, medium-term, cross-border, have performed as expected. The real-time market has contributed around 1.8 billion units during the quarter, which is around 40% of total RTM volumes traded during the quarter. Now when the CFO makes the presentation later on, all these figures -- and then this is really shown in much greater detail, I've just touched upon vital points. Now with this, I request our Director of Marketing and Business Development to brief on business and likely impact of these policy level changes. Over to you, Dr. Mishra.

Thank you very much, sir, and good evening, everybody. Just on a high note, India has witnessed the highest ever demand of 200 gigawatts on 7 July 2021. This was after [ a lot ] of lower demand in the month of April and May. As you all know, the country was affected because of the second wave of corona. It hit the country. And PTC during this very tough time has maintained high level of service both in terms of meeting the demand -- high level of demand and the fluctuations in the demand throughout the country. As Chairman has just mentioned that we have achieved a 21% growth in the volume. But we have to see this in the terms of April and May over the period when there was a chaotic lifestyle throughout the country and the fluctuation of [ predominance ] throughout the country. Scheduling of supply was effected because of the uncertainty in demand, but we could maintain both the electricity supply and cash cycles to control the entire ecosystem in the power sector. As just mentioned by CMD, the short-term volume, because of the seasonal variability and the extent of uncertainty in demand, was predominant and it reached to a level of 15 billion units in this quarter. And the total volume of this was almost 53% of the total demand in this quarter. The real-time market is the other segment, which is more nearer to the schedule dispatch, contributed almost 1.8 billion units, which was not so significant compared to the previous year. So this is one product which has added to our volumes in this quarter. Medium and long term, 9.3 billion units. Of course, we had a fixed contract for all the megawatts, what we have already signed for the long term and medium term. But because of the lesser schedule, this time, it was less than what was scheduled in the same quarter last year. Retail is a new growth area. Of course, the large industrial consumers are always a focus area for PTC India. And I'm happy to share with you that major large industrial and commercial consumers, around 700 in number, are PTC client today. Of course, they are adding value to us through their [ bulk ] procurement the exchanges and in bilateral. But with the opening of the power market, these are the potential high-growth customer for PTC in future. In the last quarter also and the year which ended on 31 March, we informed that consultancy and advisory is growing for PTC. Some other major businesses, what we have done, is through energy Efficiency Services Limited, MPAKVN, our distribution business in the ports and many other new important clients which we have not done in the past. Particularly, I would like to mention the 5-year consultancy contract for [indiscernible] in which we have entered a contract with [indiscernible] USA, where we are going to give advisory and consultancy for the cross-border electricity trade policy and guidance. So this is one important area. Many other important ones are engineering consultancy to Talcher Fertilizer and some of the other engineering consultancy work we have bought orders during the quarter. So with this, we have an order book, which is -- but what we generally call in the business parlance, unfulfilled orders, of around INR 150 crores. And in this quarter, we have completed almost INR 9 crores of consultancy business. We are also in the inventory portfolio management business for some of the state discounts, which includes demand forecasting, supply assessment, sales purchases, advisory, renewable energy planning and many other activities where we are using both our domain expertise as well as the technology to cater to this requirement. To improvise our IT capabilities and the tools to do the planning, portfolio planning, we have [ earmarked ] or/and engaged some of the senior-level executives of the company, and we have started a small technology and consultancy center in [ Gurgaon ] to kickstart these things. This will enable us to not only develop new products in this line, but also try to provide -- try to give some services as a services to the discoms to make it more value add for the company. Since last couple of quarters, we are discussing about pilot 2 scheme, and we are at the last leg of getting the PPA signed because we have confirmed order from 3 of the discoms. And we are in the last leg to sign the PPA as early as possible. And as soon as we enter into those PPAs, we will share with you all the details. The -- as Chairman has just mentioned, the power market regulation is one important regulation which we were expecting for long. And we expect that PMR '21 will make market more vibrant, and it will be more vibrant a place where a lot of new [indiscernible] and some of the hurdles, which were faced in the PMR 2010 has been removed. There is a possibility of introducing a market [ coupling ] and many other products which internationally are available can be launched after the PMR '21. Most important is one of our company which got the license for third-party exchange in the country, along with BSE and ICICI, got its license on 12th May 2021. And the Chief of this company operation has been already upon this. Some of the technology issues are getting resolved. The consultant is in place and the products which are to be introduced in -- through this exchange would be notified shortly. And we expect that in 6 to 9 months, this new exchange will be up and running, and it will come out with innovative new products in the market. Last but not the least is the recent acquisition by PTC, that is ILFS Advisory Business. We have already intimated to the stock exchanges about this development. Through this, we will be taking over the advisory business of ILFS Energy. And here, we are going to get an order book of around INR 100 crores through innovation of the contracts, what they are executing. And with them also, we are getting experienced advisory people who will be giving more value to our company and the advisory business we are currently doing. The officer has mentioned about the revamping of the distribution sector. A lot of things are happening in this sector. I would just mention that one of the important areas is the revamping of the distribution sector through the scheme which has been launched by Ministry of Power, which is more than INR 3 lakh crore of scheme, 50% of it will contribute for the metering and invoicing and the automation of that sector. And rest will be for strengthening of the distribution network. This is one area which where PTC has played some role. As you know, in the advisory and the [ OEM ] business. We have almost 8 clients whom we are selling on this area. So this is a very [ interesting ] area for us. And we have our plans. Once more details from the Ministry as well as the opportunities are -- will come, PTC is going to play some role in this area. Last but not the least is very ambitious deal licensing of the distribution sector. As I mentioned, we are already serving the industrial and commercial consumers. And there will be an opportunity for PTC to play a role of the distributions that should take place. So these are some of the things which I thought will be important to share with the investors and analysts. And we are ready to answer any other questions that you have on these areas. Thank you very much.

Thank you, Dr. Mishra. Now I request our CFO, Mr. Pankaj Goel, to share the [ certain ] presentation and [ certain ] highlights in detail. And after that, we will open for the questions and answers.

Thank you, Amitabh. Thank you, Director of Marketing. Anand, I will request you to upload the presentation so that -- now I'll go through the quarter 1 FY '22 results on a -- first on a stand-alone basis. As you can see, the volume has increased by 21 -- sorry, am I audible sir?

Yes, you are audible and on the screen.

Yes, sir, you're audible. Please go ahead.

Yes. So as I was just telling that as you can see on the screen also, the volume has increased by 21% on stand-alone basis to 22.9 billion units from 18.9 billion units during the last quarter. The increase is, as has been shown in the presentation also, the increase is mainly on account of increase in our bilateral short-term trade and the transactions from the exchange. The total operational income, which is mainly consist of the pure trading margin, the rebate, surcharge and consultancy income and altogether has increased by 17% to INR 135 crores from INR 116 crores. On the similar lines, the profit before tax has also increased by 13% to INR 104 crores from INR 91 crores during the last quarter. Profit after tax has also increased by 14% to INR 77 crores from INR 68 crores. The total other comprehensive income has increased by 13% to INR 77 crores from INR 68 crores. Likewise, the earnings per share for the quarter stood at INR 2.6 as against INR 2.29 during the last quarter. I'll go through the figures of -- on the consolidated basis. The -- as you can see that on a consolidated basis, our profit before tax has increased by 29% since, in the PTC contribution, we have other subsidiaries like PTC Financial Services and PTC Energy Limited is also contributing in this the -- on a consolidated basis. So accordingly, the profit before tax has increased by 29% to INR 183 crores from INR 142 crores during the last quarter. The profit after tax has increased by 36% to INR 136 crores from INR 100 crores. The total other comprehensive income has also increased by 50% to INR 149 crores from INR 99 crores. And earnings per share on the consolidated basis stood at INR 4.06 as compared to INR 3.07 during the last quarter. Thank you.

Thank you. Now we can open this thing for the question and answers.

[Operator Instructions] The first question is a text question from the line of [ Ankush Agarwal ] from Artifex Capital. The question is, when PTC says that they have 40% to 50% of volumes on the power exchanges, does this volumes largely represent electricity transacted by PTC on its own account and the resold of -- resold to others with some margins?

Dr. Mishra?

Yes, PTC is basically a trader member in the exchanges and any buyer or seller can approach PTC to do the transactions on their behalf if they are a registered member through PTC. So we are doing these transactions on behalf of buyers and sellers. When I say buyers, it has to be discoms or any other consumers. And when I say sellers, it will be some independent power producers, other generators who are interested to sell it on the exchanges. So any volume of the market share, what we are discussing, is representing both the buyers and sellers who are transacting through -- in the exchanges through PTC.

The second part of the question is orders. It represents volumes transacted by PTC on behalf of its client, for a flat trading fee?

Unlike the exchanges where the margins are fixed for buyers and sellers, PTC being an intermediary, it is not fixed. But it depends upon the different contracts and agreements we have with the clients.

The next question is from the line of Mohit Kumar from DAM Capital. What is the status of divestments of PTC Energy and PTC Financials?

Rajiv Malhotra?

So Mohit, to answer your questions, like we have been in touch with you guys earlier, the PTC Energy divestment, there are some definite developments signed. We are kind of closer to concluding that in terms of having definite offers and so on. PFS, and we may now have also notified this in public domain, that we are experiencing the kind of pause. Because at this point, given the environment, we're not having any material development to report on this. Hence, we are in a kind of pause situation. The intent remains and whenever there is a material development as far as -- for the progress on this, we will be notifying you.

The next question is a text only question from the line of Rohit Natarajan from Antique. What will be the role of exchanges and traders in a post MBED world? What is the outlook on converting unsigned PSA of solar power plant into business opportunities for PTC India?

Dr. Mishra and Harish, any one of you can answer this question.

Sir, let me answer it and then Harish can supplement. Post MBED, that means the entire power will not be dispatched through merit order dispatch, which is in practice today, but through a mechanism where the variable cost will be identified in the exchanges. Therefore, it is more a dispatch mechanism rather than a market. So post MBED, the entered -- the already entered PPAs will dispatch through the least cost -- least variable cost plan first. And it goes on, keeping -- ramping up until the demand meets the supply curve. So the role of exchanges will enhance to a great extent because the entire thing will be decided -- the variable cost determination for scheduling will be decided at the exchanges. The role will be very important there. Similarly, the trader, if there is something in the activity in the exchange, intermediaries has its own role. And to take all the dispatched power, intermediaries can play a role, those who are interested to take the [indiscernible]. So this is what my understanding at this point of time. But certainly, the market will broaden to a great extent both for the exchanges as well as the intermediaries post MBED. Harish, for the supplement side.

Sir, I fully agree that market will be expanded. And there was another part of the question regarding solar PSAs, if I am right?

Yes.

Solar PSAs are not going to get affected as of now because initially, the MBED will be started with the -- I mean, conventional power. So solar PSAs will not get affected.

Thank you.

The next question is a text-only question from the line of [ Manoj Agarwal ] from Ramesh K Agarwal & Co. What is dividend policy of PTC India Limited and whether they would be announced first interim dividend for FY 2021 and '22?

Thank you. Our dividend policy is well defined, and we have been sticking to it since the time this was announced. And we are committed. We are guided by our dividend policy which has specified that at least 50% of the profit and distributable profits under normal circumstances. And we want to be recognized as a shareholder-friendly company and obviously are guided by our Board and capital allocation policies in such matters. So this is the -- this will be -- are sticking to our policy and it will not be a just thing to make any future-looking statement in this analyst conference as per [indiscernible]. Thank you.

The next question is a text-only question from the line of [ GD Mundra ] from Mytemple Capital Advisor. Congratulations for excellent set of numbers. Kindly clarify the reason for the lower margin [indiscernible] 5.85 paise to 5.51 paise?

I think Dr. Mishra and Pankaj Goel, any one of you can [indiscernible] by this.

Actually, to explain it simply, Chairman has started the deliberation saying that the volumes was mostly contributed or largely contributed by the shorter term of supply, where the margins are slightly less. The longer term and the medium term has better margins. So as the volume in the longer-term and medium-term [ future ] corona being affected, the demand was lesser in percentage. The overall margin has slightly come down, but this is, again, a temporary phenomenon, and it keeps on changing because the long-term and medium-term contracts are -- it only -- the scheduling during this period was lesser. So we expect that this can be [indiscernible] once the entire loads will come back to the normal demand.

Thank you.

Pankaj, you would like to add?

No, I think you have answered it very well.

The next question is a follow-up question from the line of Mohit Kumar from DAM Capital. What are the opportunities available under discom revamp reform scheme for PTC?

Dr. Mishra?

Yes, this scheme is going to change the capability of the supply companies in the country, both the distribution and supply company. So the network is going to improve. And the most important thing is metering and collection is going to improve. So directly, if you ask me, the improvement in collection will help us in collecting more from the discom and in time. That is one. But indirectly, there is a business opportunity for us in the consulting and the advisory space. And we are trying to find out what else we can take out from this once the details of the entire thing comes to us.

The next question is a text-only question from the Amit [indiscernible] from Global Financial Services. Up to what time it is expected to start power exchange of PTC? And is there any more plan to divest shareholding in the company?

See, it's a separate company, and as Dr. Mishra already told in his introductory remarks, that they have appointed a Chief Operating Officer, and other hirings are also taking place. Simultaneously, from the technology front, they are working. The [indiscernible] have been going on. So as we understand, and Dr. Mishra can correct me, that it should become operational during this current financial year.

Yes, you are right in saying that. By 31st March, certainly, it will be [ operational ].

And second question which you have raised that our answers are very straight. We will be -- we are bound by the power market regulations. And as we will -- our shareholdings will be a reflection of the power market regulations.

The next question is a text-only question from the line of Devesh Agarwal from IIFL Securities. Two questions. First, update on Pranurja starting its operations. Any update in terms of Power Ministry consultation paper on MBED and market coupling? And with Phase 1 likely to start from April 22, what changes will this bring? And will this be achieved on the proposed date?

Any such type of paper brought out, obviously, it is upon the Ministry of Power to take a decision from when it is going to be applicable. It is being discussed, MBED. And in my understanding, they have not yet notified the discom, which this is going to be effective and discussions are going on. And if we are -- and any other existing, Dr. Mishra, do you want to add anything regarding exchanges, et cetera, please go ahead.

Sir, you rightly said that as far as the Pranurja is concerned, we are trying to -- or rather we will expect the exchange to be operational in this financial year by 31st of March. As far as the MBED implementation is concerned, this is a paper which has been circulated with all the stakeholders, including the states who will participate through this to get the opinion and the views from different stakeholders in this. So this will be a major revamp of the power market. As of course, the time line has been notified and the paper was circulated. But the key thing -- the major change involved, we are keeping our fingers crossed that it can be implemented as per the guideline -- as per the time line what they have given. And any other question which was there, the long part -- part of the long question which is unaddressed? I think we have answered it. So we can move on to the next question.

The next question is a text-only question from the line of [ Asim ], Individual Investor. What is the thought of the PTC India management regarding proceeds from the sale of PTC Energy? Would those be dividend out or retained for other purposes?

As we have stated that we have stated our dividend policy. And whatever we will do, we are going -- we are very concerned about the shareholders. We have a friendly existing outlook. So it's too early to say what will happen to the money. And when the money is going to come, all those issues, like the transactions get completed, then we'll be in a much better position to answer these questions.

The next question is a text-only question from the line of Rupesh Sankhe from Elara Capital. Post MBED and market coupling, is there a possibility of exchange margin reduction from CERC? What will be our shareholding in PTC exchange? Also, what kind of market share we are looking at in exchange?

Can you repeat the question?