Renewable energy financier… PTC India Financial services :: ICICI Securities,

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Renewable energy financier…
PTC India Financial services (PFS), leveraging its parent PTC’s strong
industry experience in the power sector, is poised for healthy growth with
focus on renewable energy. PFS’ management team comprises veterans
from the power as well as finance industry. It specialises in financing
small & medium power projects and has increased its focus on the
renewable energy chain where larger banks/NBFCs have lower attention.
Majority of the loans are to private players or for PPP projects, which
enables PFS to maintain robust asset quality. We expect PFS advances to
grow at a healthy CAGR of 82.5% over FY14-16E and consequent PAT
CAGR of 44.3%. Return ratios are expected to stay healthy (FY16E RoA /
RoE - 3.4%/25.1%, respectively). We initiate coverage on PFS with a BUY
rating and a target price of | 53 (1.6x FY16E ABV).
Healthy advances growth; preferred financier for small & medium projects
PFS has strategically, within the power sector, grown its book in the
renewable energy chain (wind and solar where exposure has gone up to
35% from 10%). The total loan book grew at ~100% in the last couple of
years taking the size to | 4530 crore as on Q1FY15 (Renewable - | 1752
crore). PFS total sanctions stood at ~| 10000 crore as on September
2014, enabling us to build in advances CAGR of 82.5% over FY14-16E to |
14,259 crore by FY16E.
Superior NIM of ~6% seen in past to moderate but stays above peers
PFS enjoys NIM of 6.5% as on Q1FY15 due to higher yields of 14-15% on
low ticket, mid-sized project lending and higher capital funds. Cost of
funds is expected to move in line with industry. Hence, we expect NIMs to
moderate to 5.13% in FY15E and 4.9% in FY16E as the cost of fund
increases to 9.48% and the share of bank loans in the overall borrowing
to increase to 86%vs 80% now.
Superior asset quality, healthy return ratios; recommend BUY
PFS has nil NNPA since inception while the GNPA ratio is just 0.9% as on
Q1FY15. We do not expect the same to rise exponentially in the near term
and have factored in 1% GNPA ratio and nil NNPA by FY16E. We build in
NII CAGR of 67% over FY14-16E aided by its ability to command higher
yields. The loan book is expected to double in FY15E, thereby leveraging
capital faster to 5.5x from 3.2x in FY14. We estimate PAT will grow at
44.3% CAGR in FY14-16E to | 430 crore by FY16E aiding healthy RoA of
3.4% and RoE at 25.1%. At the CMP of | 47, PFS is trading at 1.5x FY16E
ABV of | 32.3. We value the stock at 1.6x FY16E ABV of | 32 assigning a
target price of | 53, providing an upside of 12%.

LINK
http://content.icicidirect.com/mailimages/IDirect_PTCFinancial_IC.pdf