Balance sheet Transition

Understanding balance sheet transitions is crucial because it shows how a company’s financial health is changing over time. By tracking shifts in assets, liabilities, and equity, businesses and we can spot growth opportunities, potential risks, and financial stability.

It is one of “success pattern” that repeats multiple times and something that should be in your repertoire.

In this post we will look at one example from past and 1 current evolving story where it may play out.

Pause for a minute and look at below screen grab from screener.in for Suzlon energy

the borrowing were restructured and reduced from Rs 13,210 crore to Rs 150 crore a complete makeover

The shareholders were rewarded with 20x returns

Now onto what’s happening at PTC India, for year ended 31st March 2024, their balance sheet had Rs 654 crore which was noted as asset held for sale

PTC India announced that the upstream firm ONGC had emerged as the successful bidder for acquiring 100 per cent stake in PTC Energy for an enterprise value of Rs 2,021 crore. It also informed that the enterprise value of PTC Energy includes Rs 925 crore bid of ONGC as well as over Rs 1,100 crore debt component which will be transferred to the oil company after the transaction is complete.

This transactions will inject Rs 925 crore into business which requires almost no money to run, remember its a trading business which needs limited working capital and shareholders assumed thats this will straight flow back to them as dividend/buy back

Govt = delays,

it’s been 10-12 months and deal has not been completed and continues to drag on, management on last conference call confirmed that they are hoping to wrap up this by February 2025. The shareholders have lost patience and punished the stock it has dropped 50% from its all time high with current market cap of Rs 4000 crore

March 2025 balance sheet will have ~1000 crore cash from transaction, leaving the rest of profitable (worst case ~ Rs 100 crore quarterly run rate) business to be available at Rs 3000 crore

A couple of white swan events possible

• PTC financial service is sold off as well adding more to cash kitty

• Hindustan Power Exchange (HPX) its subsidiary may benefit if Market coupling is implemented

Possible risks

• More delays to complete transaction

• Capital mis allocation of cash proceeds, if they are reinvested in another subsidiary which is loss making

• Profitability is impacted as more short term trading is done over medium and long term power contracts, note long term power contracts can’t be done in domestic markets

It is safe to say that I may or may not have position in any companies discussed here. this note was written to improve my understanding of the situation at play.