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Review By MLR Securities Private Ltd on March 17, 2011
Issue Date: Mar 16 - Mar 18
Price Band: Rs 26 - 28
Market Cap (Rs Cr): 1,461 - 1,574
Issue Size (Rs Cr): 407 - 439
Fresh Issue (Rs Cr): 332 - 357
Offer for Sale (Rs Cr): 76 - 82
Augment capital base to meet the future capital requirements arising out of growth of business.
PTC India Financial Services (PFS) a non banking financial institution (NBFC) promoted by PTC India to make principal investments in, and provide financial solutions for companies with projects across the energy value chain. PFS provides both equity and debt financing including short term and long term debt including as well as structured debt financing. PFS also provides fee based financial services and financing against certified carbon credit emissions The company emissions. has been classified as Infrastructure Finance Company by RBI.
PTC currently holds 77.60% of equity share capital in PFS. GS Strategic Investments (an affiliate of The Goldman Sachs Group, Inc.) and Macquarie India Holdings (an affiliate of The Macquarie Group) each hold 11.20% of the company’s equity share capital.
1. Equity Investments - The focus of equity investment is in brown field & green field projects, backed by promoters with proven track record, good growth prospects and clearly defined exit routes. Their investment horizon tends to focus on the short to medium term. They also provide the last mile equity to power projects as and when required depending upon the project viability, its progress and their investment guidelines.
2. Lending - PFS offers debt assistance to projects subject to exposure limits stated earlier. PFS structures the debt assistance taking into consideration factors like needs of the borrowing entity, market conditions, regulatory requirements, risks and rewards from the projects. PFS provides debt assistance to projects in the entire energy value chain i.e. power projects, fuel sources, related infrastructure like gas pipelines, LNG terminals, ports, equipment manufacturers like transformers, conductors, insulators, cables etc; which are technically and economically viable.
3. Fee Based Services - PFS aspires to leverage its wide experience base in executing small and large offerings and the capacity to play the role of an advisor and arranger for power projects. With a core team of in-house power sector professionals, PFS strives to help its clients to become more competitive, effective and successful. PFS expects to build a formidable presence in the area of Finance Advisory and Funds Syndication in coming future.
4. Carbon Financing - PFS undertakes financing transactions through structured finance instruments tailor made to meet requirements of the projects PFS envisages a significant growth in emission reduction activities in projects. India and, hence, sees diversified opportunities in the Carbon Finance Business. In the next three years PFS proposes to build a portfolio of more than 3 million carbon credits.
Industry Scenario
The company’s market cap is coming to Rs 1,461-1574 Cr on an upper and lower price band of Rs 26-28. The company’s P/BV comes to 1.4 times its post issue book value of 18.2 on an upper price band of Rs 28. REC and PFC having exposure to power infrastructure financing are trading at a P/BV of 1.7 and 1.8 times their book values. Though PFS is not directly comparable to the REC and PFC considering their long standing experience in power financing and robust balance sheets, we believe valuations of PFS are at a discount as PFS also has significant equity investments in greenfield and brownfield projects which deserve a premium over book value. We recommend investors to subscribe the issue.
Financials (Rs in Cr) | FY09 | FY10 | 9mFY11 |
Income from investments | 10.3 | 21.3 | 14.1 |
Interest Income | 0.4 | 27.5 | 57.9 |
Other Income | 0.9 | 4.7 | 10.5 |
Total Income | 11.6 | 53.5 | 82.6 |
Interest Expense & Fin Charges | - | 11.6 | 28.6 |
Operating Expenses | 2.9 | 5.1 | 4.0 |
Depreciation & Impairement of Fixed Assets | - | - | 4.1 |
Total Provision/Write Offs | - | - | 1.6 |
PBT | 8.7 | 36.8 | 44.3 |
Tax | 0.2 | 11.2 | 13.1 |
PAT | 8.5 | 25.6 | 31.2 |
Net Worth | 609.3 | 635.9 | 1,021.5* |
Total Debt | 20.0 | 310.8 | 477.4 |
Total Assets | 630.2 | 959.0 | 1,525.0 * |
Debt Financing Projects | Capacity (MW) | Type of Loan | Term of Loan (Years) | Debt Commitment (Rs Cr) | Loan Amount Disbursed (Rs Cr) |
Thermal Powertech Corp | 1,320 | Long Term | 16 | 120 | 100 |
Konaseema Gas Power | 445 | Short Term | 3 | 100 | 100 |
Athena chattisgarh Pvt Ltd | 1,200 | Short Term | 1 | 90 | 90 |
Surana Power Ltd | 420 | Long Term | 12 | 120 | 80 |
I Comm Tele Ltd | NA | Short Term | 5 | 60 | 53 |
Bajaj Energy Private | 450 | Long Term | 13 | 75 | 44 |
Jhajjar Power | 1320 | Long Term | 12 | 32 | 32 |
OCL India | 54 | Long Term | 10 | 39 | 30 |
Amreli Power Project | 10 | Long Term | 10 | 17 | 16 |
A. A. Energy | 10 | Long Term | 10 | 16 | 16 |
Total | 5,229 | 670 | 560 |
Loans (Rs Cr) | As of 31st March | As of 31st March | As of 31st December |
2009 | 2009 | 2010 | |
Secured redeemable NCDs | - | 200 | 200 |
Secured term loan from banks (Including short erm loans) | 20 | 111 | 277 |
Total | 20 | 311 | 477 |
Competent Management
PFS extensively benefits from the power sector expertise, network and relationships of and its affiliates, which helps to assess the financing needs of power projects. Synergies with PTC India help PFS in sourcing deals as well as to understand and efficiently cater to the developers’ needs in a comprehensive manner.
Also, financing the projects where PTC is a power trader helps continuous monitoring of the project. Further, it benefits from brand association – PTC India is an established brand name in the Indian power sector. Additionally, key management personnel inducted in PFS have been associated with the power sector and have the ability to identify specific requirements of power project developers.
IFC Status – A Key Positive
PFS was granted IFC status in August 2010. We believe IFC status enhances the ability of PFS to raise funds on cost�]competitive basis and take higher debt exposure in power projects than other NBFC that have not been granted IFC status . As an IFC, PFS is entitled to lend up to 25% of MLR Investment Research 4 16th March 2011 its owned funds to a single borrower in the infrastructure sector, compared to 20% by other NBFCs that have not been granted IFC status. As an IFC, PFS is also eligible to raise ECBs upto 50% of the owned funds without prior RBI approval.
Efficient internal systems
PFS has laid down various systems and processes for project appraisal and monitoring. For instance, it has implemented the Advanced Internal Risk Scoring Model developed by ICRA Management Consulting Services Ltd for the assessment and mitigation of credit risk. These processes and systems include a detailed appraisal methodology, identification of risks and suitable structuring of credit risk mitigation measures. Further, it takes additional collaterals for weaker projects to protect itself from any deterioration in the asset quality including a recourse to promoters assets.
PFS is an NBFC with an IFC status backed by a strong promoter - PTC India with Equity Commitments worth Rs 564 Cr and a mix of long term and short term Debt Commitments of Rs 2,257 Cr. It is available at a reasonable valuations making it an attractive bet. We recommend investors to Subscribe to the issue.
Review By MLR Securities Private Ltd on March 17, 2011
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