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Buy TNPL + PTC – ICICI Research

July 11, 2007

ICICI Bank’s Stock Research team has put a BUY recommendation on Tamilandu Newsprint Ltd [TNPL] and Power Trading Corporation India [PTC].

Tamilnadu Newsprint Ltd:
TNPL could increase its average realisation by 8.65% to Rs 35,092 per tonne of paper. This was achieved by reducing newsprint production by 46% to 2,950 tonnes and increased production of copier by 23% to 44,407 tonnes. TNPL added another 7.5 MW of wind power bringing it to 37.5MW. Mill Development Plan Phase-I is underway as per schedule. It is expected to come on stream in August 2007. The backward integration initiatives taken in phase-I would give a saving of Rs 2250 per tonne and is expected to add Rs 45 crore to the bottom line.

TNPL is trading at a P/E multiple of 5.51x its FY08E EPS of Rs 16.87. These valuations extremely attractive for a company that is likely to record earnings growth of 36% during FY07-FY08E. Moreover, with an EV/EBIDTA at 5.09x in FY08E, current valuations are even more attractive. TNPL is an out performer with a price target of Rs 135 over the next 12 to 15 months.

Power Trading Corporation:
During FY07, PTC has entered into long-term power purchase agreements (PPAs) for six projects aggregating a capacity of 3,144 MW, and power sale agreements (PSAs) for another six projects aggregating a capacity of 2,314 MW. The cumulative capacity tied up through PPAs stands at 6676.3 MW and on sale through PSAs/MOUs for sale stands at 5286.5 MW.

The company has also entered into MoUs for another 35 projects totaling to a capacity of 16,703 MW. The PPA and PSA for these are still being negotiated. Development of new businesses gained further momentum with several advisory cum-transaction agreements being structured. PTC’s advisory service, which commenced in the previous year, has an order book of Rs 3 crore

At the current market price of Rs 57, the stock is trading at 10.05x its FY09 earnings, 5.50x on FY09 EV/EBITDA and 2.33x FY09 P/BV. The company’s increased focus on highgrowth, high-margin long-term trading should help it sustain growth. Buy PTC with a price target of Rs 95.

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