S t o c k I d e a Date: 23-Oct -12 CMP: `18.09 TARGET: `28.0 Upside: 54.8% B U Y SENSEX 18506 NIFTY 5627 Eq. Cap. (` Crs) 562.08 Face Value (`) 10.0 M. Cap (` Crs) `1,017 BSE Code 533344 NSE Code Financial Year PFS Apr-Mar 52-w H/L 19.6/9.7 Avg. Daily Vol. 676,145 TTM EPS (`) 3.08 TTM P/E (x) 5.9x BVPS (`) 20.85 P/BVPS (x) 0.87x Stock vs. Sensex FS Latin Manharlal Securities Pvt Ltd. 124 Viraj, S,V.Road, Khar (W), Mumbai 400 052 www.latinmanharlal.com PTC INDIA FINANCIAL SERVICES LTD (PFS) PTC India Financial Services Ltd (PFS) is a Systemically Important Non Deposit (SI- ND) accepting NBFC promoted by PTC India Ltd (PTC) for providing equity and debt financing to projects across the energy value chain in India. PFS also provides fee-based syndication and advisory services as well as carbon credit financing. Having an Infrastructure Finance Company (IFC) status by RBI (in August 2011) enhances PFS s ability to raise funds on a cost-competitive basis and assume higher debt exposure in infrastructure projects. Strong Parent: PTC India Ltd PFS benefits immensely from the power sector expertise, network and relationships of PTC and its affiliates. The strong parentage provides the company with early access to potential business opportunities in the energy value chain in India. We believe, the linkages with PTC would continue to help PFS by way of easy access to pipeline of projects for financing and domain expertise in the power sector. This apart, the company has developed strong linkages with banks, FIs, project developers, multilateral, bilateral institutions, which would help in further development of business. Enhanced its focus on Renewable Energy (RE) PFS has enhanced its focus on renewable energy as these projects do not have significant fuel and environmental clearance risks, and receive regulatory, fiscal and non-fiscal support. It has also started focusing on newer areas in the energy value chain including financing for equipment manufacturing, EPC contracts in transmission sector, ports and working capital needs. Planning to set up a Renewable Energy Fund: significant growth opportunities PFS is planning to set up a renewable energy fund that will extend equity and debt financing for non-conventional energy projects across wind, biomass and solar segments. The process for launching the fund is at a preliminary stage. The board has already given an in-principle approval for it. While the corpus of the fund could not be ascertained, PFS may look at roping strategic domestic and global investors for the fund. Raising $40 million from International Finance Corp PFS will raise ~US$40 million from International Finance Corporation (IFC) to fund various wind power projects, which can generate 75-125 MW of power in the southern states and Maharashtra. Good set of financials reported in 2QFY13 PFS has recorded total revenue of `62.7 Crs in 2QFY13 compared to `42.9 Crs in 2QFY12 recording growth of 46.1%. However, the revenue for 2QFY12 includes `12.87 Crs on account of profit on sale of investment in non-current unquoted trade investments compared to nil in the current quarter. Excluding such profit on sale of investments, the total revenue and profit before tax grew 63% and 143% respectively during 2QFY13 as compared to 2QFY12. NII increased 176% to `38.69 Crs during 2QFY13 from `14 Crs in 2QFY12. The NIM stood at 8.75% for 2QFY13 while spread at 5.99%. The total effective debt sanctions as at the end of 2QFY13 aggregated to `7589 Crs compared to `4571 Crs a the end of 2QFY'12 and `7232 Crs at the end of 1QFY12. Debt sanctions are up 66% on a y-o-y basis and 5% on a q-o-q basis. VALUATION: At the CMP of `18.09 the stock is trading at 4.6x its FY14E EPS of `3.95. We recommend BUY on the stock with a 12-18 months target price of `28.0, providing an upside of 54.8% from the current levels. Please Refer DISCLAIMER on the Last Page
Company Profile Having an IFC status by RBI enhances PFS s ability to raise funds on a cost-competitive basis and assume higher debt exposure in infrastructure projects PTC India Financial Services Ltd (PFS) is a Systemically Important Non Deposit (SI-ND) accepting NBFC promoted by PTC India Ltd (PTC) for providing equity and debt financing to projects across the energy value chain in India. PFS also provides fee-based syndication and advisory services as well as carbon credit financing. Having an Infrastructure Finance Company (IFC) status by RBI (in August 2011) enhances PFS s ability to raise funds on a cost-competitive basis and assume higher debt exposure in infrastructure projects. PFS has endeavored into establishing concrete relationship among Infrastructure Project Financing Institutions and is actively pursuing possibilities of co-operation with Foreign Financial Institution and Equipment Suppliers within Energy domain for development of innovative financial products towards early consummation of Power Projects. PTC is a GoI initiated company promoted by NTPC, Power Grid, Power Finance Corp. (PFC) and NHPC. PTC provides comprehensive solutions in the energy value chain including services such as power trading, codevelopment, fuel-intermediation and consulting. PTC continues to be leading power trader in the country with market share of more than 50%. Its portfolio size has grown more than 14000 MW of PPAs and ~15,000 MW of MoUs for power purchase. Business Model PFS provides total financial services to the entities in energy value chain including investing in equity and/or extending debt to power projects in generation, transmission, distribution; fuel sources; fuel-related infrastructure like gas pipelines; LNG terminals; ports; equipment manufacturers; and engineering, procurement and construction (EPC) contractors. The company also provides non-fund based financial services adding value to greenfield and brownfield projects at various stages of growth and development. Scope of activities include Invest in Greenfield projects, Brownfield projects and provide expansion capital on an ongoing basis Invest in identified projects: Power Exchange, Tolling projects, Biomass projects, Wind projects, Coal projects, Investment in cross border transmission link. Term Financing Financial solutions and advisory PTC India Financial Services Ltd. 2 23-Nov-2012
INVESTMENT POSITIVES Government Initiatives to boost the power sector PFS is a subsidiary of and is promoted by PTC, which is the market leader for power trading solutions in India. Linkages with PTC would continue to help PFS by way of easy access to pipeline of projects for financing Introduction of the Electricity Act 2003 and the notification of the National Electricity Policy 2005. Constitution of Independent State Electricity Regulatory Commissions in the states. The Govt. has also taken up some ambitious programmes like the Ultra Mega Power Projects (UMPP), Rajiv Gandhi Grameen Vidhyutikaran Yojana (RGGVY), Accelerated Rural Electrification Programme and the goal of Power for All among others, to rapidly increase the installed capacity. Strong Parent: PTC India Ltd PFS is a subsidiary of and is promoted by PTC, which is the market leader for power trading solutions in India. PTC is a GoI initiated company promoted by NTPC, Power Grid, PFC and NHPC. PTC provides comprehensive solutions in the energy value chain including services such as power trading, co-development, fuel-intermediation and consulting. PFS benefits immensely from the power sector expertise, network and relationships of PTC and its affiliates. The strong parentage provides the company with early access to potential business opportunities in the energy value chain in India. It also enables the company to understand and efficiently cater to the needs of the developers in a comprehensive manner. The company has received many references made by PTC in the past which can be gauged from the fact that most of the ten principal investments that the company s Board has approved, has been developed out of initial references made by PTC. We believe, the linkages with PTC would continue to help PFS by way of easy access to pipeline of projects for financing and domain expertise in the power sector. This apart, the company has developed strong linkages with banks, financial institution, project developers, multilateral, bilateral institutions, equity funds, and the like, which would help in further development of business. It has put in place a comprehensive risk management framework and is continuously working to upscale the same to match the organisational and operational growth. Equity investments Main value driver PFS has a unique business model as in addition to loan financing to power companies, it also makes strategic equity investment in companies in the energy value chain in India. The equity investments are mostly financial investments made in early stage of the project. The company s current portfolio of equity investments primarily includes green-field projects which typically involves between 2-5 years of development activity prior to commencement of commercial operations. PTC India Financial Services Ltd. 3 23-Nov-2012
Enhanced its focus on Renewable Energy (RE) Started exploring opportunities for portfolio take-over as various commercial banks are exhausting their exposure limits for the power sector PFS has enhanced its focus on renewable energy as these projects do not have significant fuel and environmental clearance risks, and receive regulatory, fiscal and non-fiscal support. It has also started focusing on newer areas in the energy value chain including financing for equipment manufacturing, EPC contracts in transmission sector, ports and working capital needs. The company has also started exploring opportunities for portfolio take-over as various commercial banks are exhausting their exposure limits for the power sector, and buy-out financing. Planning to set up a Renewable Energy Fund: significant growth opportunities PFS is planning to set up a renewable energy fund that will extend equity and debt financing for non-conventional energy projects across wind, biomass and solar segments. The process for launching the fund is at a preliminary stage. The board has already given an in-principle approval for it. While the corpus of the fund could not be ascertained, PFS may look at roping strategic domestic and global investors for the fund. PFS move to set up a fund for financing renewable energy projects follows strong interest shown by global marquee private equity firms and overseas investors in India s clean energy market. Energy requirement in the country is projected to grow at a CAGR of 7.5% during 12th Plan period While lifting of subsidies by many European governments to renewable energy companies is one of the many factors, the significant growth opportunities that the Indian renewable energy market presents is a major factor. According to government estimates, the energy requirement in the country is projected to grow at a CAGR of 7.5% during 12th Plan period reaching from 9,68,658 Giga Watt hour (Gwh) in FY2012 to 13,92,065 Gwh by FY2017E. Details of the Major Equity Investments Equity Investments Capacity (MW) O/s as at 30.09.12 (` Crs) Indian Energy Exchange Ltd N.A. 1.52 Investment Status Operational since June 2008. PFS now holds 5% in the Company. Ind-BarathEnergy (Utkal) Ltd 700 105 Financialclosure has been achieved. All clearances received and project is expected to be commissioned by July 2013. Phase I (300MW)project is expected to be commissioned shortly Meenakshi Energy Private Ltd 1000 120.14 East Coast Energy Private Ltd 1320 133.38 R S India Wind Energy Pvt Ltd 99 61.12 Source: Company Phase II (700 MW) project is on track after financial closure and expected to be commissioned in December 2013. Project on track after financialclosure. Clearance from Expert Appraisal Committee, MoEFreceived on recent environment issues. Received FIPB approval for swap of shares to the holding company. `53.9 Crs invested in 99.45 MW wind power project. Phase I (41.25 MW) of the project fully commissioned and phase II is under implementation `71.8 mn invested in WTG manufacturing facility housed in a subsidiary co. PTC India Financial Services Ltd. 4 23-Nov-2012
Ind-Bharat energy is delayed by about 12 months, but now has received the financial closure and all other clearances as well and the project with 700 MW of power capacity will be operational by July'13. East Coast Energy project also received the environment clearance, although the project is delayed by about 6 months. The project, as per the management will be back on track after financial closure. Meenakshi 1000 MW of power project is on track and the Phase 2 of 700 MW will commission in Dec'13 after successfully commissioning the Phase 1 of 300 MW. Raising $40 million from International Finance Corp. PFS will raise ~US$40 million from International Finance Corporation (IFC) to fund various wind power projects, which can generate 75-125 MW of power in the southern states and Maharashtra. The Project, which includes IFC debt funding to PFS, will allow PFS to utilise funds to increase investments in wind-based power projects in the state of Maharashtra and Tamil Nadu. This is in addition to the existing $50 million senior loan facility that has been provided by IFC to the Company in 2011, said IFC. IFC's loan, being long term, will help PFS provide funding for long gestation Renewable Energy (RE) projects. The proposed project would also help increase availability of funding to smaller private sector players. We believe PFS s expansion in this space is likely to help attract other financial institutions to increase their risk appetite and invest more in these sectors. Good set of financials reported in 2QFY13 Excluding profit on sale of investments, the total revenue and profit before tax grew 63% and 143% respectively PFS has recorded total revenue of `62.7 Crs in 2QFY13 compared to `42.9 Crs in 2QFY12 recording growth of 46.1%. However, the revenue for 2QFY12 includes `12.87 Crs on account of profit on sale of investment in non-current unquoted trade investments compared to nil in the current quarter. Excluding such profit on sale of investments, the total revenue and profit before tax grew 63% and 143% respectively during 2QFY13 as compared to 2QFY12. Net Interest Income (NII) increased 176% to `38.69 Crs during 2QFY13 from `14 Crs in 2QFY12. The Net Interest Margin (NIM) stands at 8.75% for 2QFY13 while spread at 5.99%. The NIM and spread for 2QFY12 were 6.57% and 3.88% respectively. NII considered for NIM does not include interest income of `2.77 Crs earned on treasury float on temporary surplus funds, included in other operating income of `10.30 Crs for 2QFY13. NII increased 176% to `38.69 Crs during 2QFY13 The total effective debt sanctions as at the end of 2QFY13 aggregated to `7589 Crs compared to `4571 Crs a the end of 2QFY'12 and `7232 Crs at the end of 1QFY12. Debt sanctions are up 66% on a y-o-y basis and 5% on a q-o-q basis. Post 2QFY13 till date, PFS has further sanctioned loans of `290 Crs to 4 power projects. The outstanding debt as at the end of 2QFY13 increased to `1916 Crs compared to `1270 Crs as at the end of FY12 and `991 Crs as at the end of 2QFY12, recording a growth of 51% and 93% respectively. PTC India Financial Services Ltd. 5 23-Nov-2012
Overall cost of funds came down to 8.20% during 2QFY13 against 10.22% in the same quarter last year. The Company has earned a profit after tax (PAT) of `28.7 Crs during 2QFY13 compared to `22.6 Crs in 2QFY12, thereby recording a growth of 27%. Despite toughening of the interest rates, PFS has been able to keep cost of funds lower to remain competitive. The overall cost of funds came down to 8.20% during 2QFY13 against 10.22% in the same quarter last year. There are NIL NPAs as at 30.09.2012, and return on assets (ROA) for the quarter is 1.13%. ROA for 2QFY12 was 1.31%. Capital Adequacy Ratio (CAR) stood at 48.67% at the end of Q2FY'13. Management has taken a prudent policy on provision against standard assets to 0.5%. Although this is not mandatory, looking at the gains and profits, management adopted a conservative approach. Key Focus Areas going forward would be. On renewable power and other emerging segments of power sector. Continue to develop strategic partnerships with international finance institutions. Offer comprehensive structured financing solutions to private power sector developers. Consolidate position as preferred financing solutions provider, especially for smaller & medium power projects. Maintain optimal mix of equity investments and debt financing. Expand fee based services and Certified Emissions Reduction (CER) financing. Strong Shareholding Pattern Shareholding More than 1% No of Shares % of Holding Description as on 30/09/2012 30/09/2012 Bajaj Allianz Life Insurance Company Ltd 12,147,346 2.16 Capital International Emerging Markets Fund 10,220,735 1.82 Emerging Markets Growth Fund Inc 15,933,450 2.83 G S Strategic Investments Ltd 48,666,667 8.66 HSBC Bank (Mauritius) Ltd A/C GMFA Asia Ventures Ltd 20,691,920 3.68 LIC of India 13,882,595 2.47 Macquire India Holdings Ltd 19,466,667 3.46 TOTAL 141,009,380 25.08 PTC India Financial Services Ltd. 6 23-Nov-2012
CONCERNS PFS is significantly dependent on PTC for growing and supporting its business. Company s debt finance business is concentrated on a few borrowers in the power sector. VALUATIONS At the CMP of `18.09, the stock is trading at 4.6x its FY14E EPS of `3.95. We recommend BUY on the stock with a 12-18 months target price of `28.0, providing an upside of 54.8% from the current levels. Profit & Loss A/c - Reported - ` Crs 2Q12 1Q13 2Q13 1HFY12 1HFY13 FY12 Net Sales 42.92 50.38 62.71 71.6 113.09 264.82 Total Expenditure 9.44 6.52 5.3 17.02 11.82 32.28 Employee Expenses 1.05 1.31 1.61 1.99 2.92 4.41 Selling & Adm. Expenses 0 0 0 0 0 0 Provisions & Write Offs 0.57 1.84 1.45 0.77 3.29 4.63 Other Expenses 7.82 3.37 2.24 14.26 5.61 23.24 EBITDA 33.48 43.86 57.41 54.58 101.27 232.54 Margin 78.0% 87.1% 91.5% 76.2% 89.5% 87.8% Depreciation 1.17 0.99 1.05 2.33 2.04 4.67 EBIT 32.31 42.87 56.36 52.25 99.23 227.87 Interest 16.8 18.8 24.18 32.24 42.98 68.61 Other Income 14.9 9.93 10.39 25.47 20.32 42.38 PBT 30.41 34 42.57 45.48 76.57 201.64 Tax 7.77 11.05 13.82 12.6 24.87 47.6 PAT 22.64 22.95 28.75 32.88 51.7 154.04 Margin 52.7% 45.6% 45.8% 45.9% 45.7% 58.2% EPS (`) 0.40 0.41 0.51 0.58 0.92 2.74 Source: Company, LMSPL Research Registered Office: 124 Viraj, S,V.Road, Khar (W), Mumbai 400 052. Tel. (022) 4082 4082, Fax (022) 2649 7997. research@lmspl.com www.latinmanharlal.com, LMSPL Network: Fort, Mahalaxmi, Parel, Bandra, Santacruz, Vile Parle, Andheri, Malad, Kandivili, Borivali, Bhayender, Ghatkopar, Mulund, Chunabhatti, Jacob Circle, Masjid Bunder, Cotton Green, Thane, Bhiwandi, Panvel, Pune, Sholapur, Nasik, Malegoan, Ahmednagar, Aurangabad, Akola, Mahekar, Nagpur, Surat, Karjan(Baroda), Khambat, Ahmedabad, Rajkot, Surendranagar, Porbandar, Amreli, Bharuch, Anand, Chennai, Vishakhapatnam, Vizianagaram, Palasa, Kakinada, Karnal, Kolkatta, Bhubhaneshwar, Hyderabad, Bangalore, Jafrabad, Chital, Kodinar, Keshod, Gondal, Haryana, Srikakulam, Mehkar (Buldhana, Jamnagar, Bangalore, Jodhpur, Jalgaon, Malkangiri (Orissa), Karimnagar Dist. (Andhra Pradesh) This document is for information only and is meant for the use of the recipient & not for circulation. The information contained in this document has been taken from publicly available information, trade and statistical services & other sources. While the information contained herein is from sources believed to be reliable, we do not hold ourselves responsible for its completeness and accuracy. All opinions and estimates included in this report constitute our judgement as of this date and are subject to change without notice. Investors are expected to use the information contained in this report at their own risk. This report is not and should not be construed as an offer or the solicitation of an offer to buy or sell any securities. M/s Latin Manharlal Securities Pvt. Ltd. and its affiliates may act as market maker or have assumed an underwriting position in the secure-ties of companies discussed herein and may sell them to or buy them from customers on a principal basis. PTC India Financial Services Ltd. 7 23-Nov-2012