ptc india financial services ltd. oct 23,...

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PTC India Financial Services Ltd. PICK OF THE WEEK

Oct 23, 2017

Recommendation

Buy at CMP and add on Dips

Add on dips to

Rs. 38.6 – 33.5

Target

Rs. 50, 54

Time Horizon

4 -6 Quarters

Industry

Financial

CMP

Rs. 38.6

Renewed focus on Renewables & Resolution of NPAs

PTC India Financial Services Ltd (PFS) is a non-banking finance company promoted by PTC India Limited that owns

65% stake in the company. PFS has been granted the status of an Infrastructure Finance Company (“IFC”) by the

Reserve Bank of India. The company offers wide range of debt and equity linked financing products meeting the

financing needs of power projects and related areas across the entire energy value chain. PFS is structured as a

‘one-stop shop’ for financing of power projects over the project life cycle from development stage, financial closure

to post operationalization.

Investment Rationale: Government’s Plans of Power for All

Robust growth in renewables power financing.

Adequately Capitalized

NPA Resolution on Track

Healthy Financials and High Dividend yield

Concerns: Any slowdown in NPA resolution will be a major setback.

Slowdown in Indian power sector.

Change in Interest rate policy.

View & Valuation:

At CMP of Rs. 38.6 stock is trading at 0.9x P/ABV of FY19, which is very cheap compared to other peers. We

recommend PTC India Finance a BUY at CMP Rs. 38.6 and add on decline of Rs. 33.5 for the targets of Rs. 50 and

Rs. 54 in the time frame of 3-4 Quarters.

Earlier in June-16 we have initiated coverage on PFS with the BUY rating at Rs.36 for the targets of Rs 43 and 50

which were dully achieved. (http://old.hdfcsec.com/Research/ResearchDetails.aspx?report_id=3018042)

FUNDAMENTAL ANALYST

Nisha Shankhala

[email protected]

HDFC Scrip Code PTCIND

BSE Code 533344

NSE Code PFS

Bloomberg PTCIF IN

CMP as on 19 Oct 17 38.6

Equity Capital (Rs mn) 6423

Face Value (Rs) 10

Equity O/S (mn) 642.3

Market Cap (Rs mn) 9916

Book Value (Rs) 37.7

Avg. 52 Week Vol 2021608

52 Week High 50.7

52 Week Low 33.6

Shareholding Pattern (%)

Promoters 65

Institutions 5

Non Institutions 30

PCG Risk Rating* Yellow

* Refer Rating explanation

http://old.hdfcsec.com/Research/ResearchDetails.aspx?report_id=3018042

mailto:[email protected]

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Oct 23, 2017

Business Background:

PTC India Financial Services Ltd (PFS) is a non-banking finance company promoted by PTC India Limited

that owns 65% stake in the company. PFS has been granted the status of an Infrastructure Finance

Company (“IFC”) by the Reserve Bank of India. The company offers wide range of debt and equity linked

financing products meeting the financing needs of power projects and related areas across the entire

energy value chain. PFS is structured as a ‘one-stop shop’ for financing of power projects over the project

life cycle from development stage, financial closure to post operationalization.

PFS has a presence across Infra sector

Power Generation

Conventional - Thermal

Renewable - Solar/ Wind/ Small Hydro/ Roof-top

Large Hydro

Transmission & Distribution

Energy Efficiency

Road, Ports

Other Related Economic Infra

Figure 1ufuyut

KEY HIGHLIGHTS

PFS is a NBFC promoted by

PTC India Limited. The

company offers wide range of

debt and equity linked

financing products meeting

the financing needs of power

projects and related areas

across the entire energy value

chain.

Recently Government has

launched many schemes to

make power available to every

house of India. PFS with razor

sharp focus on power sector

and deep domain expertise is

starring at huge opportunities.

The company is expecting

siginificant NPA resolution till

FY2018. And also no major

addition to NPAs are expected.

So if company succeeds in the

resolution process it will be

massive turnaround in

fortunes.

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Oct 23, 2017

Investment Rationale:

Power for all – Government’s Major Push

India is the 3rd largest producer and 4th largest consumer of electricity in the world. The country also has

the 5th largest installed capacity in the world. Although power generation has grown more than 100-fold

since independence, growth in demand has been even higher due to accelerating economic activities.

The Indian economy is under a transformational change led by the Union Government. The power sector

has always been the lifeline of the economy and is one of the prime drivers of economic growth and social

development. The development of power sector has been given due importance in the national planning

and resource allocation process.

The total installed capacity in the country crossed the 325 GW (Gigawatt) mark as at 31st March 2017.The

government targets capacity addition of around 100 GW under the 13th Five-Year Plan (2017–22).

Government has launched following schemes to make power available to every house of

India: “Power for All”

Deen Dayal Upadhyay Gram Jyoti Yojana (DDUGJY) and Integrated Power Development Scheme

(IPDS) for rural and urban areas.

Ujwal DISCOM Assurance Yojana (UDAY) which would enable electrification for all villages by

reducing losses through programmers that involve public participation.

Recently also Prime Minister has launched Saubhagya –Rs.16000 Cr scheme. Under the scheme

every household in the country will be given an electricity connection. No price will be charged for

the poor to get an electricity connection and the government will go to their houses to give them

the connection.

PFS will be huge beneficiaries of the Power Push by recent Government. PFS is exclusively devoted to power

sector and has thus acquired over the years deep domain expertise. In addition, PFS has access to PTC's

proficiency in energy value system in carrying out activities like fuel intermediation, power trading and

trading with cross border entities.

Robust growth in renewables

Spreading its wings over diversified sectors, PFS is gradually extending its hold in the value chain from

power generation to transmission and distribution assets, fuel source related infrastructure like, ports, and

equipment manufacturers in power sector. PFS is also focusing on its role in renewable space – Solar,

Biomass, Wind Energy and Small Hydro.

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Oct 23, 2017

Renewable energy is rapidly emerging as a major source of power and the company is in the league to reap

the benefit of it. This sector saw record capacity additions during FY2017. The total generation capacity

addition in respect of renewable projects aggregated to about 11 GW during FY2017. The renewable capacity

is poised to see further capacity additions in line with the Government’s vision of installed capacity of 175GW

by 2022.

The company also increased its exposure towards this sector, wherein the segment contributed at around

58% in its loan book in FY17 from 21% of FY12. With the government’s push towards renewable space, the

company sees immense opportunities to grow its business.

Adequately Capitalized

The company has a well-built capital base with capital adequacy ratio of 24.1% compared to 21.77% in

FY16. This would help it to meet its growth requirements in the medium term. We don’t see any further

capital infusion requirements in short to medium term.

NPA Resolution on Track

The power and infrastructure sector is witnessing stress and several projects in the country (both operational

and under construction) are facing challenges. The Company is continuously engaged in resolution of such

loans and is working proactively with the consortium members. The Company has also hired consultants /

professional agencies for working out effective solution / resolution for such cases.

As of June-17 GNPA of the company stood at Rs. 638.8 Cr making it 5.83% of Loan book, while NNPA stood

at Rs. 442 Cr (4.11% of loan book).

Certain NPA accounts of the company are under various stages of resolution.

In case of one NPA account, which is a consortium account has been transferred to Asset

Reconstruction Company.

In case of another NPA account, the promoter has succeeded in signing up PPA with private sector

Distribution Company, while the promoter has also approached other financial institution for

refinancing of the loan so the account is expected to get re-paid.

In case of hydro sector NPA project, the resolution under SDR scheme is under process. The company

expects emergence of investor interest for the project after approval of new hydro power policy of

the Government of India.

The company expects to achieve resolution for NPA amounting to at least Rs 300 Cr till FY2018. And no

significant addition to the NPA is expected. So if company succeeds in the resolution process it will be a massive turnaround case.

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Oct 23, 2017

Financial Analysis

Loan assets reported a buoyant growth of 53% CAGR over FY12-17, while Net Interest Income (NII) and

net profit grew at 19% and 18% CAGR for the same period respectively. During FY17, the company NII

rose by 17% at Rs 483 Cr while bottom line decline by 12% at Rs 345. ROAA and ROE stood at 3.5% and

16.6% in FY17. Reported Net Interest Margin (NIM) came at 5.3% in FY17. Going ahead PAT is expected

to grow at 22% CAGR, Loan book at 28% CAGR in FY17-19E.

Risk & Concerns:

Any slowdown in NPA resolution will be a major setback.

Slowdown in Indian power sector.

Change in Interest rate policy.

View & Valuation:

Recent Government has launched many schemes to make power available to every house of India. PFS

with exclusive focus to power sector and domain expertise gets huge opportunities.

The company is expecting mjor NPA resolution till FY2018 and also no large further addition to NPAs are

expected. At CMP of Rs. 38.6 stock is trading at 0.9x P/ABV of FY19, which is very cheap compared to

peers. We recommend PTC India Finance a BUY at CMP Rs. 38.6 and add on decline of Rs. 33.5 for the

targets of Rs. 50 and Rs. 54 in the time frame of 4-6 Quarters.

Earlier in June-16 we have initiated coverage on PFS with the BUY rating at Rs.36 for the targets of Rs

43 and 50, which were duly achieved. (http://old.hdfcsec.com/Research/ResearchDetails.aspx?report_id=3018042)

http://old.hdfcsec.com/Research/ResearchDetails.aspx?report_id=3018042

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Oct 23, 2017

Loan Assets Segment wise, %

Source: Company, HDFC sec Research

0

20

40

60

80

100

FY12 FY13 FY14 FY15 FY16 FY17

Thermal Renewable Hydro Others

Loan Assets (Rs Cr) grow at 53% CAGR in 5 years


0

2000

4000

6000

8000

10000

12000


53%

Net Interset Margin (NIM%)


7.4

8.5

6.96.3

6

5.3

0

1

2

3

4

5

6

7

8

9


Net Interest Income & Net Profit


0

100

200

300

400

500

600


Rs

Cr

NII NP

NII CAGR: 19% NP CAGR: 18%

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Oct 23, 2017

Resolution programme to bring down NPA


0

100

200

300

400

500

600

700

FY15 FY16 FY17 FY18E FY19E

GNPAs (Rs.Cr) NNPAs (Rs.Cr)

High Dividend Yiled


2.6 2.6

3.1

3.8 3.8 3.8

FY14 FY15 FY16 FY17 FY18E FY19E

Adjusted Book Value


24.4427.44

31.54

37.04

44.34

0

5

10

15

20

25

30

35

40

45

50


Return Ratios (%)


11.5

24.6

16.6 15.517.5

2.65.0

3.5 3.3 3.3

0

5

10

15

20

25

30


RoNW ROAA

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Oct 23, 2017

Income Statement (Rs Cr)

Year ending March FY15 FY16 FY17 FY18E FY19E

Operating Income 742 1128 1256 1482 1823

Other Operating Income 60.3 58.6 95.6 113.0 138.8

Total Income 802 1187 1352 1595 1962

Growth (%) 47 48 14 18 23

Operating Expenses 442.7 560.3 680.6 814.7 978.2

Provisions & Write Offs 113.9 95.2 142.6 185.3 222.4

PBT 245.3 531.4 528.7 595.2 761.5

Growth (%) -13.9 116.6 -0.5 12.6 27.9

Tax Expenses 84.4 140.8 183.7 196.4 251.3

RPAT 161 391 345 399 510

Growth (%) -23 143 -12 16 28

EPS 2.9 7.0 5.9 6.2 7.9 Source: Company, HDFC sec Research

Balance Sheet (Rs Cr)

As at March FY15 FY16 FY17 FY18E FY19E

SOURCE OF FUNDS

Share Capital 562.1 562.1 642.3 642.3 642.3

Reserves 875 1180 1777 2075 2484

Shareholders' Funds 1437.2 1742.5 2419.3 2717.7 3126.5

Long Term Debt 3764.7 4843.6 4715.9 6225.0 7905.7

Net Deferred Taxes 8.0 0.0 0.0 1.0 1.0

Long Term Provisions & Others 68.1 61.9 98.3 100.0 150.0

Minority Interest 0.0 0.0 0.0 0.0 0.0

Total Source of Funds 5278 6648 7234 9044 11183

APPLICATION OF FUNDS

Net Block 22 18 15 14 12

Deferred Tax Assets (net) 0.0 4.5 19.8 10.0 10.0

Long Term Loans & Advances 5860.0 8100.6 9967.3 12864.6 16688.0

Total Non Current Assets 5882 8123 10002 12888 16710

Trade Receivables 0.9 1.1 5.7 5.7 5.7

Short term Loans & Advances 208.3 206.8 207.5 209.6 211.7

Cash & Equivalents 22.6 24.8 35.4 51.9 47.7

Other Current Assets 636.2 466.8 501.5 506.5 516.7

Total Current Assets 868 700 750 774 782

Short-Term Borrowings 1159.9 1407.6 2855.2 3940.1 5595.0

Trade Payables 3.2 3.9 4.2 4.2 4.2

Other Current Liab & Provisions 241.4 682.0 659.3 672.4 706.1

Short-Term Provisions 67.5 81.2 0.1 0.1 0.1

Total Current Liabilities 1472.0 2174.8 3518.7 4618.2 6308.7

Total Application of Funds 5278 6648 7234 9044 11183


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Oct 23, 2017

Key Ratio

Y/E March (%) FY15 FY16 FY17 FY18E FY19E

Growth (%)

Operating Income 48 52 11 18 23

Total Income 47 48 14 18 23

Pre-provisioning profit 18 74 7 16 26

Net Profit -23 143 -12 16 28

Advances 29 34 24 28 28

Borrowings 31 27 21 34 33

Earnings Ratios (%)

RoNW 11.5 24.6 16.6 15.5 17.5

ROAA 2.6 5.0 3.5 3.3 3.3

Dividend Yield (%) 2.6 3.1 3.8 3.8 3.8

Net Interest Margin (NIM) 6.3 6.0 5.3 5.5 5.9

Asset Quality

GNPAs (Rs.Cr) 81.6 293.7 584.8 498.0 398.0

NNPAs (Rs.Cr) 63.4 200.4 393.5 338.6 278.6

GNPAs % 1.3 3.5 5.5 3.7 2.3

NNPAs % 1.0 2.3 3.8 2.5 1.6

Provision coverage % 22.3 31.8 32.7 32.0 30.0

Valuation Ratios

BVPS (Rs.) 25.6 31.0 37.7 42.3 48.7

ABVPS (Rs.) 24.4 27.4 31.5 37.0 44.3

EPS (Rs.) 2.9 7.0 5.9 6.2 7.9

P/BV (x) 1.5 1.3 1.0 0.9 0.8

P/ABV (x) 1.6 1.4 1.2 1.1 0.9

P/E (x) 13.6 5.6 6.7 6.3 4.9


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Oct 23, 2017

Rating Chart

R E T U R N

HIGH

MEDIUM

LOW

LOW MEDIUM HIGH

RISK

Ratings Explanation:

RATING Risk - Return BEAR CASE BASE CASE BULL CASE

BLUE LOW RISK - LOW RETURN STOCKS

IF RISKS MANIFEST PRICE CAN FALL 20% OR MORE

IF RISKS MANIFEST PRICE CAN FALL 15%

& IF INVESTMENT RATIONALE

FRUCTFIES PRICE CAN RISE BY 15%

IF INVESTMENT RATIONALE

FRUCTFIES PRICE CAN RISE BY 20% OR

MORE

YELLOW MEDIUM RISK - HIGH RETURN STOCKS






FRUCTFIES PRICE CAN RISE BY 35% OR

MORE

RED HIGH RISK - HIGH RETURN STOCKS







OR MORE

11 | P a g e


Oct 23, 2017

Date Reco

Range Target Rs.

status

June- 2016 BUY

36 -32 43,50

Achieved

October -2017 BUY

38.6 – 33. 5 50,54

12 | P a g e


Oct 23, 2017

Disclosure: I, Nisha Sankhala, MBA, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. HSL has no material adverse disciplinary history as on the date of publication of this report. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Research Analyst or her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or her relative or HDFC Securities Ltd. or its Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest. Any holding in stock –No HDFC Securities Limited (HSL) is a SEBI Registered Research Analyst having registration no. INH000002475. Disclaimer: This report has been prepared by HDFC Securities Ltd and is meant for sole use by the recipient and not for circulation. The information and opinions contained herein have been compiled or arrived at, based upon information obtained in good faith from sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. This document is for information purposes only. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this document is not, and should not be construed as an offer or solicitation of an offer, to buy or sell any securities or other financial instruments. 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