PTC India Financial Services -Growth on fast track… :: ICICI Securities

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Growth on fast track…
• NII grew 62% YoY to | 89.6 crore in line with our estimate of | 90
crore. Advances grew 77% YoY to | 5883 crore (I-direct estimate:
| 6300 crore). NIM, as expected, declined to 6.2% from 6.5%
• Fee income grew 571% YoY to | 16.6 crore from | 2.3 crore
(Q3FY14) forming 20% of the total net operating income
• Operating expenditure increased to | 14.6 crore (I-direct estimate: | 7
crore) vs. | 10 crore in Q2FY15 as during the quarter there was forex
loss to the tune of | 5 crore
• PAT, therefore, was below our expectation at | 54 crore (I-direct
estimate: | 65 crore). Last year, in Q3FY14, PFS had booked | 82
crore on sale of investments. Excluding that, PAT grew 33% YoY
• Asset quality continues to be strong with nil NNPA
Robust growth aided by small base, focus on renewable energy
PFS’ advances have grown exponentially at a CAGR of 92% over FY11-14
to | 4530 crore. PFS initially had the largest exposure to thermal power
projects at ~60% till FY12, which were primarily sourced as a reference
from parent company PTC India. The company now garners business on
its own with focus on renewable energy projects. PFS is a preferred
financier to small and medium renewable power projects. As on Q3FY15,
renewable energy loans comprise 40% (| 2245 crore) of the loan book,
followed by thermal 32%, others 25% and hydro another 8%. Owing to
lower-than-expected growth in FY15E, we have moderated the loan book
CAGR from 52% earlier to 47% over FY14-17E to | 14268 crore (sanction
as on Q3FY14 stood at | 12445 crore). We expect renewable energy loans
to constitute 60% of the loan book increasing to | 8700 crore by FY17E.
Equity investments in power projects at present are valued at | 301 crore
and are expected to be liquidated, going ahead.
Healthy NIM at above 6%, increase in leverage to shave off 50-70 bps
PFS enjoys NIM of 6.5% as on Q2FY15 due to higher yields of 13-14% on
low ticket, mid-sized project lending and higher capital funds. Leveraging
on its power sector lineage, PFS is able to structure loans and provide
other technical assistance to small developers, which enables it to
command a higher yield. On the liability side, PFS in the past had the
benefit of raising funds through low cost tax free bonds and ECBs.
However, to aid fast track growth, the bank borrowing is set to increase,
pressurising NIM. We expect NIMs to stay at 5%+ factoring increased
bank borrowings and capital raising of | 600 crore in FY17E.
Strong asset quality with nil NNPA
PFS’ book is fairly new (growth in debt financing only in last three to four
years). Hence, there are hardly any NPAs as on Q3FY15. Going ahead, we
factor in some deterioration as the book matures. However, asset quality
will continue to be at manageable levels (GNPA at 1.5% of credit at | 178
crore FY17E) aided by lower gestation renewable energy projects.
Revise downwards our growth estimates; maintain target at | 62, HOLD
We believe there is ample opportunity to grow in the power project
financing space and PFS has been able to set itself up as a niche player in
the renewable energy space. Owing to lower-than-expected growth in
FY15 so far, we have revised downwards our credit growth estimates to
47% CAGR and PAT CAGR to 33% over FY14-17E from 52% and 44%
earlier, respectively. RoA, RoE still remain healthy at 3.7%, 22%,
respectively, aided by double digit PAT growth. We maintain our target
price at | 62 valuing the stock at 1.5x FY17E ABV with a HOLD rating.

LINK
http://content.icicidirect.com/mailimages/IDirect_PTCFinancial_Q3FY15.pdf