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India Equity Research Reports, IPO and Stock News
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PTC India Financial Services (PFS), a 77% subsidiary of PTC India (PTC) involved in
equity and debt financing of power projects, has announced its IPO (16-18 March),
in a price band of INR 26-28/share. We analyse the impact of the IPO on PTC’s
valuations.
PFS IPO price band adds 4% to SOTP; implies upside of 6% on CMP
We have thus far been valuing PTC’s stake in PFS at book value (INR
15/share). Post the IPO, based on the price band and after taking a
25% holding company discount, we find PFS’ value in PTC’s books to be
INR 18-20/share.
IPO to offload stake and strengthen balance sheet
The IPO is a combination of part stake sale by Macquarie (7% of existing equity)
and further dilution (29% of existing equity) by PFS to raise INR 3.3-3.5 bn to
strengthen its balance sheet. PFS has invested INR 4 bn in equity stakes in 3.2
GW of upcoming capacities, while it has disbursed INR 5.9 bn in loans to 6.8 GW
projects under construction.
Recent correction on exaggerated investor concerns
The penalty income booked in December 2010 by PTC triggered investor
concerns about SEBs defaulting on payments to PTC. However, the concerns
appear exaggerated since the penalty received from Bihar was for past dues
(already received in 2009), while the one month delay in payment from Tamil
Nadu SEB was due to administrative roadblocks caused by its trifurcation into
genco, transco, and discom. Although the exposure to SEB finances is a valid
risk for PTC, the risk is much larger for generators and banks. Given the high
stakes we believe remedial measures by the government are in the offing.
Outlook & valuations: CMP factors only cash, trading ; maintain ‘BUY’
The current prices factor in only the value of cash on books and core trading
business, leaving out value of tolling projects and investments including PFS. Our
current SOTP of INR 135/share values PFS at book value, culminating in to
INR 15/share. However, taking 25% discount to the IPO price band, our revised
SOTP works out to INR 139-140/share. We reiterate our ‘BUY/Sector
Outperformer’ recommendation/rating on the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
PTC India Financial Services (PFS), a 77% subsidiary of PTC India (PTC) involved in
equity and debt financing of power projects, has announced its IPO (16-18 March),
in a price band of INR 26-28/share. We analyse the impact of the IPO on PTC’s
valuations.
PFS IPO price band adds 4% to SOTP; implies upside of 6% on CMP
We have thus far been valuing PTC’s stake in PFS at book value (INR
15/share). Post the IPO, based on the price band and after taking a
25% holding company discount, we find PFS’ value in PTC’s books to be
INR 18-20/share.
IPO to offload stake and strengthen balance sheet
The IPO is a combination of part stake sale by Macquarie (7% of existing equity)
and further dilution (29% of existing equity) by PFS to raise INR 3.3-3.5 bn to
strengthen its balance sheet. PFS has invested INR 4 bn in equity stakes in 3.2
GW of upcoming capacities, while it has disbursed INR 5.9 bn in loans to 6.8 GW
projects under construction.
Recent correction on exaggerated investor concerns
The penalty income booked in December 2010 by PTC triggered investor
concerns about SEBs defaulting on payments to PTC. However, the concerns
appear exaggerated since the penalty received from Bihar was for past dues
(already received in 2009), while the one month delay in payment from Tamil
Nadu SEB was due to administrative roadblocks caused by its trifurcation into
genco, transco, and discom. Although the exposure to SEB finances is a valid
risk for PTC, the risk is much larger for generators and banks. Given the high
stakes we believe remedial measures by the government are in the offing.
Outlook & valuations: CMP factors only cash, trading ; maintain ‘BUY’
The current prices factor in only the value of cash on books and core trading
business, leaving out value of tolling projects and investments including PFS. Our
current SOTP of INR 135/share values PFS at book value, culminating in to
INR 15/share. However, taking 25% discount to the IPO price band, our revised
SOTP works out to INR 139-140/share. We reiterate our ‘BUY/Sector
Outperformer’ recommendation/rating on the stock.
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