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Research
PTC India Financial Services - Robust growth, stable asset quality, high capital adequacy; Buy - Anand Rathi
Posted On : 2014-02-23 19:42:59( TIMEZONE : IST )
Key takeaways
Renewables, short-term loans drive growth. PTC India Financial Services' (PTCIF) loans grew a rapid 66.9% yoy (7.3% qoq), to Rs. 33.5bn, led by strong growth in its renewables segment (up 67% yoy) and short-term lending portfolio (up 255% yoy). The share of thermal in the overall loan book fell 570bps yoy, to 40.9%. Outstanding sanctions rose 35.0% yoy, as the share of renewables and others climbed to 36% (from 22% a year ago). We expect 47% CAGR in loan growth over FY13-16, led by strong parentage and diversified product mix.
NIM declines as bank borrowings rise. Reported NIM, at 6.8%, was 150bps lower yoy, owing to rise in the cost of funds (as the proportion of bank borrowings in the mix increased to 68.3% against 41% a year ago). Management expects a restrained impact of the rupee depreciation as incremental foreign borrowings are fully hedged. Ahead, we expect the spread to remain stable with the likelihood of a rising share of higher yielding short-term loans offsetting greater cost of bank borrowings.
Asset quality stable, high capital adequacy. Asset quality has been stable. However, to factor in the stresses prevalent in the macroeconomic environment, we conservatively build in higher credit costs of 50bps over FY15 and FY16 (30bps in FY12). Moreover, the best-in-class 34.7% capital adequacy would protect it against additional delinquencies.
Our take. PTCIF divested its entire stake in a private power project, with gains to the tune of Rs. 822m. Excluding the extraordinary gains, profits increased 31% yoy. A strong loan growth, conservative underwriting standards and high capital adequacy are likely to drive 31.2% growth in earnings in FY13-16. Risk-reward favours the IFC at current valuations of 0.5x FY15e BV. We reiterate a Buy. At our target price, the stock will trade at 0.7x FY15e and 0.6x FY16e BV. Our Mar'15 target is based on the two-stage DDM (CoE: 19.7%; Beta: 1.3; Rf: 8%). Risk. Delay in power sector reforms could hit growth and asset quality.