Clients: The secret behind Power Trading Corp's 30% fall

Power Trading Corporation India (PTC) is headed for trouble. At least that's what the chart below foretells.

A peek at its financial statements for the September quarter reveals that its receivables (money due from clients) have almost doubled to Rs 2,300 crore from Rs 1,000 crore in the June-ending quarter.

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No wonder the company's share price has crashed by a steep30 percent in the past month.

Along with the fact that its clients are delaying payments, another cause of worry is the low availability of coal and high interest rates, both of which are hurting its power projects, said international brokerage firm Kim Eng.

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About 44 percent of the Rs 2,300 crore comes from two state-owned electricity distributors -Tamil Nadu and Uttar Pradesh.

As both these units are suffering from operating losses, their payments to PTC have fallen significantly. So far, Tamil Nadu has paid only Rs 50 crore of its total dues of Rs 700 crore. Kim Eng believes PTC will be unable to reduce its receivables in the next two quarters as its customers have yet to take steps to reduce their losses.

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That means the company will have to raise debt to fund its high working capital, which will increase interest costs and reduce earnings.

Already, in the September quarter, the company's interest cost increased to Rs 7.9 crore from Rs 1.4 crore from the earlier quarter.

Kim Eng expects interest expenses to increase three-fold to Rs 36 crore in the second half of the year ending March 2012 due to the unexpected increase in receivables and debt.

Overall, the near-term future looks bleak as KIM has forecast that PTC's receivables will rise to Rs 3,000 crore by the March quarter.