Buy PTC India Fin; target of Rs 25.8: Aditya Birla Money

“PTC India Financial Services, net profit after tax for the current quarter increased 101.0% YoY (76.3% QoQ) to Rs 102.4 mn from Rs 50.9 mn for Q1FY11. The growth in PAT was mainly driven by higher NII which grew by 61.0% YoY during the quarter. NIM during the quarter stood at ~5.0% (excluding interest on fixed deposits) as against 5.8% for FY11. Outstanding loan book as on Q1FY12 was Rs7.64 bn as against Rs4.42 bn on Q1FY11 (Rs6.75 bn on Q4FY11), registering a YoY growth of 72.9% (13.2% QoQ). Total loan sanction during the quarter stood at Rs5.0 bn as against 4.0 bn in Q1FY11 and Rs6.8 bn in Q4FY11. As of Q1FY12 total effective Debt Sanctions stood at Rs35.3 bn. Currently the company’s loan financing book is very small mainly due to lower leverage of ~1.1x (calculated post deducting equity investment from net worth).”

“Going ahead, we expect the loan book to grow at a CAGR of ~75.3% (on lower base) over FY11-14E from Rs6.8 bn currently to Rs36.4 bn with leverage increasing from the current 1.1x to 5.0x by FY14E. Equity investment book remained unchanged sequentially at Rs4.59 bn during the quarter. In the current financial year the company’s board has decided to divest a portion of its stake in India Energy Exchange as it is required to bring down its stake in the company to 5.0% by FY13 from 21.12% currently. Added to this, the company has also accepted the call option given by Ind-Bharat Powergencom Ltd in which the company invested Rs556.3 mn in August 2008 with a committed IRR of 23.75% (post tax). The deal is expected to be completed in the current quarter. We expect a total inflow of Rs545.1 mn during the current fiscal from sale of equity investments. The total borrowing book of the company during the quarter increased by 7.7% QoQ. The management intends to make its borrowing profile more broad based which currently is dominated by bank borrowings and NCDs.”

“During the quarter the company raised ~$10.0 mn through ECBs. The management further intends to draw fund through this route in the coming quarters due to its cost advantage (~8.0% after hedging vs average cof of 10.5%).The management expects share of bank borrowing to come down going forward to ~20.0% by FY14E, while NCDs, ECBs and infrastructure bonds are likely to constitute around 40.0%, 30.0% and 10.0% respectively. • Asset quality continued to remain strong with Nil NPA as of Q1FY12. The management is confident to keep asset quality under check going forward and has indicated that only one account (RK Powergencom) is facing delays. The total exposure of PFS to this project is ~200.0-250.0 mn. However, the management do not foresee any restructuring in any of the projects in which the company has an exposure.”
 
“Environmental clearance, fuel security and linkages, long term PPA’s and overall timely execution are critical to the success of projects and therefore its Equity and debt investments. We believe PFS is a young outfit and growing very rapidly with all right ingredients to make it big. We have valued PFS in two parts i.e. equity investment book and loan financing book separately. For valuing the equity investments, we have assumed base case post tax equity IRR of 18% and cost of equity of 14%, to arrive at the multiple of 1.54 x to its current equity investment book of ~4.59 bn. Applying this derived multiple to FY14E equity investment book of ~7.24 bn and discounting it at FY12, gives us a value of Rs15.2 / share. The loan financing book is valued at 1.1x its FY12E book value of Rs 5.42 bn, thus giving us a fair value of Rs5.96 bn or Rs 10.6 / share. This gives us the fair value for both the business at 25.8/share (25.7/share earlier) in the base case scenario, implying an upside potential of 44.1% from current levels,” says Aditya Birla Money research report.

FIIs holding more than 30% in Indian cos

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