Buy ...PTC India
PTC India Finance Ltd: A compelling option! – BUY
CMP: ₹62, 1-yr Target: ₹88, Upside: 30%
PE- 7.42, Price/BV - 0.70
25-30%
pa loan growth sustainable without taking undue risks
We see PFS comfortably sustaining its strong loan growth
momentum of 30% pa in the coming years. This would be driven by substantial
investments in the renewable energy space that country will continue to
witness. Government’s ambitious green energy capacity addition target and
supportive policy impetus has opened a gigantic financing opportunity. Strong
credibility and efficient and robust sanction process greatly positions PFS
amid a benign competitive environment. No wonder that contribution of renewable
energy in company’s loan assets and sanctions is creeping up fast. While being
excited about growth, the management has been cautious while selecting the
promoters for funding. Share of renewable projects in loan book is expected to
cross 55% by end FY18.
Portfolio
concentration a key risk, but is gradually receding
In project financing, loan concentration is the key risk that a financier has to live with. For PFS, it is more prominent given its small size. However, the trending of asset mix towards renewable segment is gradually de-risking balance sheet given granularity in renewable lending (lower ticket size) and smooth execution experience of the projects. NPLs in renewable portfolio are negligible. Even in thermal portfolio where high concentration is worrisome, PFS does not expect any exposure to turn bad in the near term. Rather, traction in this book has improved off-late as execution on many projects has picked-up. About 80% of the projects funded are likely to get commissioned in FY17.
In project financing, loan concentration is the key risk that a financier has to live with. For PFS, it is more prominent given its small size. However, the trending of asset mix towards renewable segment is gradually de-risking balance sheet given granularity in renewable lending (lower ticket size) and smooth execution experience of the projects. NPLs in renewable portfolio are negligible. Even in thermal portfolio where high concentration is worrisome, PFS does not expect any exposure to turn bad in the near term. Rather, traction in this book has improved off-late as execution on many projects has picked-up. About 80% of the projects funded are likely to get commissioned in FY17.
Healthy
lending franchise available at valuation of a PSU Bank
In our view, PFS’s RoA and RoE would settle at 2.7-2.8% and 16-17% in the long run. This would be underpinned by stabilization of spread and credit cost at 4% and 1% respectively. The company has room to respond to any increase in competitive pressure as cost of funding is moderating. PFS is trading at an undemanding valuation of 0.7x FY18 P/ABV; in-line with PSU Banks, which seems unfair considering higher inherent profitability, robust growth prospects and strong capitalization. Recommend BUY with a 12-month price target of ₹88.
In our view, PFS’s RoA and RoE would settle at 2.7-2.8% and 16-17% in the long run. This would be underpinned by stabilization of spread and credit cost at 4% and 1% respectively. The company has room to respond to any increase in competitive pressure as cost of funding is moderating. PFS is trading at an undemanding valuation of 0.7x FY18 P/ABV; in-line with PSU Banks, which seems unfair considering higher inherent profitability, robust growth prospects and strong capitalization. Recommend BUY with a 12-month price target of ₹88.
Happy Investing
No comments:
Post a Comment