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Reiterate Buy
PTC Financial Services’ (PFS) IPO price band is inline with
our fair value assumption of Rs25/share, and thus we
maintain our FY12E target price of Rs160/share for PTC
India. We believe the fundamental value drivers for the
power trading business are intact in the long run. PTC
India’s power trading business is valued at 9x FY13E P/E,
giving us a fair value of Rs68/share. Currently, the stock is
trading at Rs82/share which is less than the combined
value of the power trading business and Rs40/share of
cash in the books. Besides this the company’s strategic
investments, which include its stake in PFS and power
tolling projects, are valued at Rs75/share.
PFS IPO: PFS is offering 156.7mn shares through IPO at a
price band of Rs26-28/share. This includes issue of
127.5mn fresh equity shares. Post the issue, PTC’s
holding in PFS will come down from 77.8% to 60%.
About PFS: PFS is engaged into the business of funding
power projects, both through equity and debt, and plans
to expand its presence by investing in other verticals of
energy sector. Currently, PFS has equity investment
commitments of Rs5,641mn, of which definitive
agreements Rs4,828mn have been entered into. On the
debt front, the company has sanctioned Rs22,567mn,
against which definitive agreements for Rs11,198mn
have been entered into.
PTC India SOTP value unchanged We valued PFS at
1.5x BV, thus contributing Rs25/share to PTC’s SOTP. At
the IPO price band, PTC India’s investment in PFS comes
at Rs8,768-9,443mn, translating into per share value of
Rs30-32/share. Factoring in a 25% holding company
discount, the effective value of PFS is inline with the fair
value we assigned to the investment and thus maintain
our FY12E target price of Rs160.
Fundamentals intact; Reiterate buy: Despite the sharp
correction in PTC’s price, our view on the value drivers
for PTC remains intact. We expect 51% CAGR in volumes
to 145.4BU in FY15E, as PPA tied up capacity gets
operational. The commissioning of PPA tied up capacity
will increase the share of long-term volumes from 38% in
FY10 to 85% in FY15E. Thus, PTC’s power trading margin
will improve from ~4.5paise/unit to ~5.8paisa/unit in the
long-run. With PFS valued in line with our fair value
estimate, we maintain buy on the stock with no change
in our target price of Rs160.
PFS’ IPO update
About the issue: PFS is offering 156.7mn shares through the IPO, which includes 29.2mn shares
for sale from Macquarie India Holdings Pvt Ltd and issue of 127.5mn fresh equity shares. The IPO
price band has been fixed at Rs26-28/share. PFS would raise Rs3,315-3570mn through the issue
Post the issue, the share holding of PFS’ three shareholders -- PTC India, Macquarie India and
Goldman Sach Investment -- will come down from 77.8%, 11.2% and 11.2% to 60%, 3.46% and
8.66%, respectively. The issue is open for subscription from 16 March 2011 to 18 March 2011.
About PFS: PFS is engaged into the business of funding power projects, both through equity and
debt. Going forward, the company plans to expand its presence by investing in other verticals of
energy sector. Currently, the company has equity investment commitments of Rs5,641mn
(3,221MW of power generation capacity) of which definitive agreements Rs4,828mn (power
generation capacity of 2,621MW) have been entered into. On the debt front, the company has
sanctioned Rs22,567mn (power generation capacity of 8,928MW), against which definitive
agreements for Rs11,198mn (8,283MW of power generation capacity) have been entered into.
Analyst meet – Key takeaways
Though currently PFC is into equity and debt funding of power projects, going forward, it
plans to spread into other verticals of energy sector
PFS was granted infrastructure finance company status in Aug 2010. This enables to company
to lend up to 25% of owned funds to a single infrastructure developer and raise money
through ECB up to 50% of its net-worth through the direct route
Though PFS’ NIMs have come down from 17.2% in FY 09 to 7.52% for the 9 month period of
FY11, they are still higher than the industry average of ~3%. This is because PFS is able to raise
money through short-term market and other cheaper routes like ECBs. However, at the same
time the company is maintaining a zero asset-liability mismatch
IPO price band inline with our SOTP valuation
We have valued PFS at 1.5x BV, thus contributing Rs25/share to PTC’s SOTP. At the IPO price band,
PTC’s investment in PFS comes at Rs8,768-9,443mn, translating into per share value of Rs30-
32/share of PTC. Considering a 25% holding company discount, the effective value of PFS is inline
with the fair value we have assigned.
Reiterate Buy as fundamentals remain intact
Despite the sharp correction in PTC’s price, our view on the value drivers for PTC remains intact.
The company has signed PPA for ~14,500MWof generation capacity, which is expected to get
operational in phases through FY15E. Thus, we expect PTC’s volume to grow at a 5year CAGR of
51% to 145.4BU in FY15E, as this PPA tied up capacity gets commissioned. Commissioning of PPA
based capacity will increase the proportion of long-term volumes in total volumes from 38% in
FY10 to 85% in FY15E and thus will fetch PTC improved power trading margin of ~5.8paisa/unit in
the long-run, form the current ~4.5paise/unit. For the given growth in volumes and improvement
in trading margins, we value the trading business at 9xFY13E P/E giving us a fair value of
Rs68/share. Currently the stock is trading at Rs82/share which is less than the combined value of
the power trading business and Rs40/share of cash in the books of PTC. Beyond this the
company’s strategic investments, which includes PFS and power tolling projects of PTC, are
valued at Rs75/share. We thus reiterate Buy on PTC with a price target of Rs160/share.
Exhibit 3: PTC India SOTP valuation
Rs/Share
Power trading business - P/E of 9x FY13 EPS of Rs7.3 65
Cash & Equivalent 40
PTC FS - 1.5x P/B 25
PTC Tolling valued at 7xFY13E P/E 30
Total 160
Source: Centrum Research Estimates
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Reiterate Buy
PTC Financial Services’ (PFS) IPO price band is inline with
our fair value assumption of Rs25/share, and thus we
maintain our FY12E target price of Rs160/share for PTC
India. We believe the fundamental value drivers for the
power trading business are intact in the long run. PTC
India’s power trading business is valued at 9x FY13E P/E,
giving us a fair value of Rs68/share. Currently, the stock is
trading at Rs82/share which is less than the combined
value of the power trading business and Rs40/share of
cash in the books. Besides this the company’s strategic
investments, which include its stake in PFS and power
tolling projects, are valued at Rs75/share.
PFS IPO: PFS is offering 156.7mn shares through IPO at a
price band of Rs26-28/share. This includes issue of
127.5mn fresh equity shares. Post the issue, PTC’s
holding in PFS will come down from 77.8% to 60%.
About PFS: PFS is engaged into the business of funding
power projects, both through equity and debt, and plans
to expand its presence by investing in other verticals of
energy sector. Currently, PFS has equity investment
commitments of Rs5,641mn, of which definitive
agreements Rs4,828mn have been entered into. On the
debt front, the company has sanctioned Rs22,567mn,
against which definitive agreements for Rs11,198mn
have been entered into.
PTC India SOTP value unchanged We valued PFS at
1.5x BV, thus contributing Rs25/share to PTC’s SOTP. At
the IPO price band, PTC India’s investment in PFS comes
at Rs8,768-9,443mn, translating into per share value of
Rs30-32/share. Factoring in a 25% holding company
discount, the effective value of PFS is inline with the fair
value we assigned to the investment and thus maintain
our FY12E target price of Rs160.
Fundamentals intact; Reiterate buy: Despite the sharp
correction in PTC’s price, our view on the value drivers
for PTC remains intact. We expect 51% CAGR in volumes
to 145.4BU in FY15E, as PPA tied up capacity gets
operational. The commissioning of PPA tied up capacity
will increase the share of long-term volumes from 38% in
FY10 to 85% in FY15E. Thus, PTC’s power trading margin
will improve from ~4.5paise/unit to ~5.8paisa/unit in the
long-run. With PFS valued in line with our fair value
estimate, we maintain buy on the stock with no change
in our target price of Rs160.
PFS’ IPO update
About the issue: PFS is offering 156.7mn shares through the IPO, which includes 29.2mn shares
for sale from Macquarie India Holdings Pvt Ltd and issue of 127.5mn fresh equity shares. The IPO
price band has been fixed at Rs26-28/share. PFS would raise Rs3,315-3570mn through the issue
Post the issue, the share holding of PFS’ three shareholders -- PTC India, Macquarie India and
Goldman Sach Investment -- will come down from 77.8%, 11.2% and 11.2% to 60%, 3.46% and
8.66%, respectively. The issue is open for subscription from 16 March 2011 to 18 March 2011.
About PFS: PFS is engaged into the business of funding power projects, both through equity and
debt. Going forward, the company plans to expand its presence by investing in other verticals of
energy sector. Currently, the company has equity investment commitments of Rs5,641mn
(3,221MW of power generation capacity) of which definitive agreements Rs4,828mn (power
generation capacity of 2,621MW) have been entered into. On the debt front, the company has
sanctioned Rs22,567mn (power generation capacity of 8,928MW), against which definitive
agreements for Rs11,198mn (8,283MW of power generation capacity) have been entered into.
Analyst meet – Key takeaways
Though currently PFC is into equity and debt funding of power projects, going forward, it
plans to spread into other verticals of energy sector
PFS was granted infrastructure finance company status in Aug 2010. This enables to company
to lend up to 25% of owned funds to a single infrastructure developer and raise money
through ECB up to 50% of its net-worth through the direct route
Though PFS’ NIMs have come down from 17.2% in FY 09 to 7.52% for the 9 month period of
FY11, they are still higher than the industry average of ~3%. This is because PFS is able to raise
money through short-term market and other cheaper routes like ECBs. However, at the same
time the company is maintaining a zero asset-liability mismatch
IPO price band inline with our SOTP valuation
We have valued PFS at 1.5x BV, thus contributing Rs25/share to PTC’s SOTP. At the IPO price band,
PTC’s investment in PFS comes at Rs8,768-9,443mn, translating into per share value of Rs30-
32/share of PTC. Considering a 25% holding company discount, the effective value of PFS is inline
with the fair value we have assigned.
Reiterate Buy as fundamentals remain intact
Despite the sharp correction in PTC’s price, our view on the value drivers for PTC remains intact.
The company has signed PPA for ~14,500MWof generation capacity, which is expected to get
operational in phases through FY15E. Thus, we expect PTC’s volume to grow at a 5year CAGR of
51% to 145.4BU in FY15E, as this PPA tied up capacity gets commissioned. Commissioning of PPA
based capacity will increase the proportion of long-term volumes in total volumes from 38% in
FY10 to 85% in FY15E and thus will fetch PTC improved power trading margin of ~5.8paisa/unit in
the long-run, form the current ~4.5paise/unit. For the given growth in volumes and improvement
in trading margins, we value the trading business at 9xFY13E P/E giving us a fair value of
Rs68/share. Currently the stock is trading at Rs82/share which is less than the combined value of
the power trading business and Rs40/share of cash in the books of PTC. Beyond this the
company’s strategic investments, which includes PFS and power tolling projects of PTC, are
valued at Rs75/share. We thus reiterate Buy on PTC with a price target of Rs160/share.
Exhibit 3: PTC India SOTP valuation
Rs/Share
Power trading business - P/E of 9x FY13 EPS of Rs7.3 65
Cash & Equivalent 40
PTC FS - 1.5x P/B 25
PTC Tolling valued at 7xFY13E P/E 30
Total 160
Source: Centrum Research Estimates
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