PTC India Financial Services Ltd.

Industry Financial CMP Rs. 38.6 Recommendation Buy at CMP and add on Dips Add on dips to Rs. 38.6 33.5 Target Rs. 5, 54 Time Horizon 4-6 Quarters Renewed focus on Renewables & Resolution of NPAs HDFC Scrip Code PTCIND BSE Code 533344 NSE Code Bloomberg PFS PTCIF IN CMP as on 19 Oct 17 38.6 Equity Capital (Rs mn) 6423 Face Value (Rs) 1 Equity O/S (mn) 642.3 Market Cap (Rs mn) 9916 Book Value (Rs) 37.7 Avg. 52 Week Vol 22168 52 Week High 5.7 52 Week Low 33.6 Shareholding Pattern (%) Promoters 65 Institutions 5 Non Institutions 3 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: PCG Risk Rating* * Refer Rating explanation Yellow At CMP of Rs. 38.6 stock is trading at.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. 5 and Rs. 54 in the time frame of 3-4 Quarters. FUNDAMENTAL ANALYST Nisha Shankhala nishaben.shankhala@hdfcsec.com Earlier in June-16 we have initiated coverage on PFS with the BUY rating at Rs.36 for the targets of Rs 43 and 5 which were dully achieved. (http://old.hdfcsec.com/research/researchdetails.aspx?report_id=31842) 1 P a g e

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. 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. 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 FY218. And also no major addition to NPAs are expected. So if company succeeds in the resolution process it will be massive turnaround in fortunes. 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 2 P a g e

Investment Rationale: Power for all Government s Major Push India is the 3 rd largest producer and 4 th largest consumer of electricity in the world. The country also has the 5 th largest installed capacity in the world. Although power generation has grown more than 1-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 217.The government targets capacity addition of around 1 GW under the 13th Five-Year Plan (217 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.16 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. 3 P a g e

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 FY217. The total generation capacity addition in respect of renewable projects aggregated to about 11 GW during FY217. The renewable capacity is poised to see further capacity additions in line with the Government s vision of installed capacity of 175GW by 222. 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 3 Cr till FY218. And no significant addition to the NPA is expected. So if company succeeds in the resolution process it will be a massive turnaround case. 4 P a g e

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 FY218 and also no large further addition to NPAs are expected. At CMP of Rs. 38.6 stock is trading at.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. 5 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 5, which were duly achieved. (http://old.hdfcsec.com/research/researchdetails.aspx?report_id=31842) 5 P a g e

Rs Cr PTC India Financial Services Ltd. Loan Assets Segment wise, % 1 Loan Assets (Rs Cr) grow at 53% CAGR in 5 years 12 1 8 6 8 6 53% 4 2 FY12 FY13 FY14 FY15 FY16 FY17 Thermal Renewable Hydro Others 4 2 FY12 FY13 FY14 FY15 FY16 FY17 Net Interset Margin (NIM%) 9 8.5 Net Interest Income & Net Profit 6 8 7 6 5 7.4 6.9 6.3 6 5.3 5 4 3 NII CAGR: 19% NP CAGR: 18% 4 2 3 2 1 FY12 FY13 FY14 FY15 FY16 FY17 1 FY12 FY13 FY14 FY15 FY16 FY17 NII NP 6 P a g e

Resolution programme to bring down NPA 7 6 High Dividend Yiled 3.8 3.8 3.8 5 4 3 2 1 2.6 2.6 3.1 FY15 FY16 FY17 FY18E FY19E GNPAs (Rs.Cr) NNPAs (Rs.Cr) FY14 FY15 FY16 FY17 FY18E FY19E Adjusted Book Value 5 44.34 45 4 37.4 35 31.54 3 27.44 24.44 25 2 15 1 5 FY15 FY16 FY17 FY18E FY19E Return Ratios (%) 3 25 24.6 2 16.6 15.5 17.5 15 11.5 1 5 2.6 5. 3.5 3.3 3.3 FY15 FY16 FY17 FY18E FY19E RoNW ROAA 7 P a g e

Income Statement (Rs Cr) Year ending March FY15 FY16 FY17 FY18E FY19E Operating Income 742 1128 1256 1482 1823 Other Operating Income 6.3 58.6 95.6 113. 138.8 Total Income 82 1187 1352 1595 1962 Growth (%) 47 48 14 18 23 Operating Expenses 442.7 56.3 68.6 814.7 978.2 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 -.5 12.6 27.9 Tax Expenses 84.4 14.8 183.7 196.4 251.3 RPAT 161 391 345 399 51 Growth (%) -23 143-12 16 28 EPS 2.9 7. 5.9 6.2 7.9 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 875 118 1777 275 2484 Shareholders' Funds 1437.2 1742.5 2419.3 2717.7 3126.5 Long Term Debt 3764.7 4843.6 4715.9 6225. 795.7 Net Deferred Taxes 8... 1. 1. Long Term Provisions & Others 68.1 61.9 98.3 1. 15. Minority Interest..... Total Source of Funds 5278 6648 7234 944 11183 APPLICATION OF FUNDS Net Block 22 18 15 14 12 Deferred Tax Assets (net). 4.5 19.8 1. 1. Long Term Loans & Advances 586. 81.6 9967.3 12864.6 16688. Total Non Current Assets 5882 8123 12 12888 1671 Trade Receivables.9 1.1 5.7 5.7 5.7 Short term Loans & Advances 28.3 26.8 27.5 29.6 211.7 Cash & Equivalents 22.6 24.8 35.4 51.9 47.7 Other Current Assets 636.2 466.8 51.5 56.5 516.7 Total Current Assets 868 7 75 774 782 Short-Term Borrowings 1159.9 147.6 2855.2 394.1 5595. Trade Payables 3.2 3.9 4.2 4.2 4.2 Other Current Liab & Provisions 241.4 682. 659.3 672.4 76.1 Short-Term Provisions 67.5 81.2.1.1.1 Total Current Liabilities 1472. 2174.8 3518.7 4618.2 638.7 Total Application of Funds 5278 6648 7234 944 11183 8 P a g e

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. 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. 5.3 5.5 5.9 Asset Quality GNPAs (Rs.Cr) 81.6 293.7 584.8 498. 398. NNPAs (Rs.Cr) 63.4 2.4 393.5 338.6 278.6 GNPAs % 1.3 3.5 5.5 3.7 2.3 NNPAs % 1. 2.3 3.8 2.5 1.6 Provision coverage % 22.3 31.8 32.7 32. 3. Valuation Ratios BVPS (Rs.) 25.6 31. 37.7 42.3 48.7 ABVPS (Rs.) 24.4 27.4 31.5 37. 44.3 EPS (Rs.) 2.9 7. 5.9 6.2 7.9 P/BV (x) 1.5 1.3 1..9.8 P/ABV (x) 1.6 1.4 1.2 1.1.9 P/E (x) 13.6 5.6 6.7 6.3 4.9 9 P a g e

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 IF RISKS MANIFEST BLUE PRICE CAN FALL 15% IF RISKS MANIFEST LOW RISK - LOW & IF INVESTMENT PRICE CAN FALL RETURN STOCKS RATIONALE 2% OR MORE FRUCTFIES PRICE CAN RISE BY 15% YELLOW RED MEDIUM RISK - HIGH RETURN STOCKS HIGH RISK - HIGH RETURN STOCKS IF RISKS MANIFEST PRICE CAN FALL 35% OR MORE IF RISKS MANIFEST PRICE CAN FALL 5% OR MORE IF RISKS MANIFEST PRICE CAN FALL 2% & IF INVESTMENT RATIONALE FRUCTFIES PRICE CAN RISE BY 3% IF RISKS MANIFEST PRICE CAN FALL 3% & IF INVESTMENT RATIONALE FRUCTFIES PRICE CAN RISE BY 3% IF INVESTMENT RATIONALE FRUCTFIES PRICE CAN RISE BY 2% OR MORE IF INVESTMENT RATIONALE FRUCTFIES PRICE CAN RISE BY 35% OR MORE IF INVESTMENT RATIONALE FRUCTFIES PRICE CAN RISE BY 5% OR MORE 1 P a g e

Date Reco Range Target Rs. status June- 216 BUY 36-32 43,5 Achieved October -217 BUY 38.6 33. 5 5,54 11 P a g e

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