october 29, 2014 ptc india financial services...

October 29, 2014

Initiating Coverage

ICICI Securities Ltd | Retail Equity Research

Renewable energy financier… PTC India Financial services (PFS), leveraging its parent PTC’s strong industry experience in the power sector, is poised for healthy growth with focus on renewable energy. PFS’ management team comprises veterans from the power as well as finance industry. It specialises in financing small & medium power projects and has increased its focus on the renewable energy chain where larger banks/NBFCs have lower attention. Majority of the loans are to private players or for PPP projects, which enables PFS to maintain robust asset quality. We expect PFS advances to grow at a healthy CAGR of 82.5% over FY14-16E and consequent PAT CAGR of 44.3%. Return ratios are expected to stay healthy (FY16E RoA / RoE - 3.4%/25.1%, respectively). We initiate coverage on PFS with a BUY rating and a target price of | 53 (1.6x FY16E ABV).

Healthy advances growth; preferred financier for small & medium projects PFS has strategically, within the power sector, grown its book in the renewable energy chain (wind and solar where exposure has gone up to 35% from 10%). The total loan book grew at ~100% in the last couple of years taking the size to | 4530 crore as on Q1FY15 (Renewable - | 1752 crore). PFS total sanctions stood at ~| 10000 crore as on September 2014, enabling us to build in advances CAGR of 82.5% over FY14-16E to | 14,259 crore by FY16E.

Superior NIM of ~6% seen in past to moderate but stays above peers PFS enjoys NIM of 6.5% as on Q1FY15 due to higher yields of 14-15% on low ticket, mid-sized project lending and higher capital funds. Cost of funds is expected to move in line with industry. Hence, we expect NIMs to moderate to 5.13% in FY15E and 4.9% in FY16E as the cost of fund increases to 9.48% and the share of bank loans in the overall borrowing to increase to 86%vs 80% now.

Superior asset quality, healthy return ratios; recommend BUY PFS has nil NNPA since inception while the GNPA ratio is just 0.9% as on Q1FY15. We do not expect the same to rise exponentially in the near term and have factored in 1% GNPA ratio and nil NNPA by FY16E. We build in NII CAGR of 67% over FY14-16E aided by its ability to command higher yields. The loan book is expected to double in FY15E, thereby leveraging capital faster to 5.5x from 3.2x in FY14. We estimate PAT will grow at 44.3% CAGR in FY14-16E to | 430 crore by FY16E aiding healthy RoA of 3.4% and RoE at 25.1%. At the CMP of | 47, PFS is trading at 1.5x FY16E ABV of | 32.3. We value the stock at 1.6x FY16E ABV of | 32 assigning a target price of | 53, providing an upside of 12%. Exhibit 1: Valuation Metrics (Year-end March) FY12 FY13 FY14 FY15E FY16ENet Interest Income (| crore) 64.3 150.1 211.6 366.5 591.2 Profit before tax (| crore) 201.6 155.3 284.9 362.6 591.0 Net Profit (| crore) 154.0 104.2 207.7 264.7 430.9 EPS (|) 20.7 21.8 24.0 27.2 32.3 Growth (%) 316.0 (32.4) 99.4 27.4 62.8 P/E (x) 17.2 25.4 12.7 10.0 6.1 Price / Adj Book (x) 2.3 2.2 2.0 1.7 1.5 GNPA (| crore) - - 42.9 71.4 140.2 NNPA (| crore) - - - - - RoA (%) 8.4 4.3 5.0 3.3 3.4 RoE (%) 14.1 8.7 16.1 18.4 25.8

Source: Company, ICICIdirect.com Research

PTC India Financial Services (PTCIND) | 47 Rating Matrix Rating : BuyTarget : | 53Target Period : 12 monthsPotential Upside : 12%

Key Variables | Crore FY13 FY14 FY15E FY16ENII 150.1 211.6 366.5 591.2 PPP* 162.6 304.2 390.7 628.9 PAT 104.2 207.7 264.7 430.9 EPS (|) 1.9 3.7 4.7 7.7

*Pre Provision Profit (PPP)

Valuation Summary (YoY Growth) FY13 FY14 FY15E FY16EP/E 25.4 12.7 10.0 6.1 Target P/E 28.3 14.2 11.1 6.8 P/BV 2.2 2.0 1.7 1.5 Target P/ABV 2.4 2.2 1.9 1.6 RoA 4.3 5.0 3.3 3.4 RoE 8.7 16.1 18.4 25.8

Stock Data Particulars AmountMarket Capitalisation | 2692 crore GNPA (Q1FY15) 0.9%NNPA (Q1FY15) Nil NIM % (Q1FY15) 6.2 52 week H/L 49.3/10.3 Equity capital | 526 Crore Face value | 10 DII Holding (%) 3.0 FII Holding (%) 5.0

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Analyst’s name Kajal Gandhi [email protected]

Vasant Lohiya [email protected] Sheetal Ashar [email protected]


Company background PTC India Financial Services (PFS) was promoted by PTC India (PTC) as a special purpose investment vehicle to provide total financial services to entities in the energy value chain. These, inter-alia, include investment in equity and/or extending debt to power projects in generation, transmission, distribution, fuel sources, fuel related infrastructure like gas pipelines, LNG terminals, ports, equipment manufacturers, EPC contractors, etc. PFS also provides non-fund based financial services adding value to greenfield and brownfield projects at various stages of growth and development.

PTC India Financial Services was incorporated on September 8, 2006 as a public limited company. The company received its certificate for commencement of business in March 2007. In 2009-10, it commenced its debt financing business while in 2010-11 it was accorded the status of infrastructure finance company (IFC) by the RBI. The company, in the same year successfully completed its IPO at a share price of | 28 and mobilised | 352 crore. PE investor - Macquarie India Holdings Ltd also offered its share along with the fresh issue, post which it ceased to be the controlling shareholder. Both initial PE investors GS Strategic Investments Ltd and Macquarie India Holdings Ltd ceased to be shareholders of the company by June 2014. PFS’ Board of directors consists of veterans from the power and infrastructure finance industry. As on date, the company has a small integrated team of 14 people who are actively involved in the daily operations of the company.

Exhibit 2: Key Personnel

In the past, he has held the position of Chairman & Managing Director of IDBI Bank (July 2010 to May 2013), Chairman &Managing Director of Small Industries Development Bank of India (July 2007 to July 2010) and Chief Executive Officer of IFCILtd (July 2005 to July 2007)

A professional of long standing in the industry, he has had strong relations with major multilateral organisations such as WorldBank, ADB, KFW, JICA, AFD, etc. and a number of foreign and domestic infrastructure finance companies, banks, FIs andproject developersHe is an MCom from Delhi University and an MBA from Faculty of Management Studies, University of Delhi and is a certifiedassociate of the Indian Institute of Bankers (CAIIB)

He is a member of The Institute of Chartered Accountants of India, Institute of Company Secretaries of India, The Institute ofCost and Works Accountants of India. Dr Haldia has diversified experience of project financing and industrial financing policy;public sector policy reforms, evaluation and management; power sector reform, restructuring and financing

He has been associated with formulation of accounting & auditing standards, corporate laws and governance, Islamic finance,WTO-GATS, reforms in government accounting and related aspects of public finance. He had been a member of a number ofcommittees set up by the Government of Rajasthan, the Government of India, ICAI, and other national & international bodies

Dr Singh has more than 25 year of experience in financing including infrastructure finance. In this time, he has handled severalfinancing proposals, both from the perspective of borrowers and lenders. Dr Singh has also been closely involved with the firstpublic-private-partnership project in the power sector

Dr Singh was a member of the Civil Services and has a PhD in financial management. He has also served as director finance atDelhi Power Company Ltd, Delhi Transco Ltd, Indraprastha Power Generation Company Ltd and Pragati Power Company Ltd.Before this, he was GM in Power Grid Corporation Ltd

Rajender Mohan Malla (Managing Director & CEO)

Dr Ashok Haldia (Director)

Dr Pawan Singh (Director & CFO)


Promoter and FIIs & DIIs holding (%) (Sep 2014)

Others32%

DII3%FII

5%

Promoter60%

Source: BSE, ICICIdirect.com Research


PFS business so far…

Post its IPO, PFS’ advances have grown at a healthy CAGR of 93% to | 4530 crore over FY11-14. Equity investment as on March 31, 2014 stood at | 305 crore

As of June 30, 2014, PFS had outstanding loans of | 4956 crore and sanctions to the tune of | 10463 crore representing 30000 MW of aggregate of power generation capacity

Borrowings in line with advances have grown from | 57 crore in FY11 to | 3896 crore. Funding from banks and financial institutions substantially increased in FY14 as the company expanded its debt financing business

NII has grown at a CAGR of 84% to | 211 crore from | 29 crore. Reported cost of funds (CoF) for FY14 was 9.5% while yield on advances (YoA) was healthy at 13.8%. NIM stood at 6.5%, best among its peers

PAT has increased from | 37 crore in FY11 to | 207 crore in FY14, registering a CAGR of 69%. PFS has booked profits in two of its equity investment at a profit of | 127 crore and | 82 crore in FY12 and FY14, which has aided PAT growth

As on June 2014, the company has zero Net NPAs

Return on assets stood at 3.2% while return on equity was at 16.1%

Capital adequacy ratio stood at a healthy 25.23% as on June 2014

Promoter background

PTC India Ltd (PTC) was established in 1999 by the Government of India as a public-private initiative with the primary focus on promoting power trading to optimally utilise existing resources, attract viable investments in the power sector on the strength of multi-buyer model and create a power market among India and neighbouring countries. PTC has maintained the largest market share since inception and is No. 1 in the last 10 years of operation. The company was promoted by public sector majors in the industry namely NTPC, Power Grid, PFC and NHPC

As on March 2014, the net worth of PTC stood at | 2500 crore, return on net worth was at 10.4% while return on capital employed was at 15%.

Exhibit 3: PTC India revenues trend

7845 9060

7701 8857 11

511

15% 15%

30%

-15%0

2000400060008000

100001200014000

FY10 FY11 FY12 FY13 FY14

| cr

ore

-20%

-10%

0%

10%

20%

30%

40%

Grow

th (Y

oY)

Revenues Growth

Source: PTC India Annual report, ICICIdirect.com Research

Exhibit 4: PTC India PAT growth trend

94 139

120

129

251

48%

8%

95%

-14%0

50

100

150

200

250

300


| cr

ore

-20%0%

20%40%60%80%

100%120%

Grow

th (Y

oY)

PAT Growth

Source: PTC India Annual report, ICICIdirect.com Research

Loan book break-up (June 30, 2014)

Others , 1017, 21%

Hydro, 456, 9%

Renewable, 1752, 35%

Thermal, 1731, 35%



Indian power sector – Opportunity for all India has an installed power generation capacity of 253389 MW as on August 2014, with 70% thermal based power generation. With increased focus on clean energy sources, the share of nuclear energy and renewable energy is set to rise. Currently, renewable energy share (RES) is at 13% with installed capacity 31,692 MW. However, due to its low PLF factor, its share in annual electricity generation is just 6%.

Exhibit 5: Installed capacity (August 2014)(MW)

Installed capacity Nuclear Hydro RES Grand TotalCoal Gas Diesel Total

Central 46525 7066 - 53591 4780 10623 - 68993State 55291 6974 603 62868 - 27482 3804 94153Private 50495 8568 597 59661 - 2694 27888 90243All India 152311 22608 1200 176119 4780 40799 31692 253389Installed capacity renewable share 13%

Thermal

Source: CEA – Monthly report; ICICIdirect.com Research

Exhibit 6: RES – Installed renewable energy break-up in MW (August 2014)

Solar Power8%

Bio Power13%

Wind Power67%

Small Hydro power12%

Source: CEA, Ministry of New and Renewable Energy, ICICIdirect.com Research

As per the planning commission data, India continues to face a power deficit with over 60 crore Indian citizens (As on September 2014) not having access to frequent electricity. Over a third of the rural population lacked electricity, as did 6% of the urban population.

Exhibit 7: Power deficit over the years

2007-08 737052 664660 72392 9.82008-09 777039 691038 86001 11.12009-10 830594 746644 83950 10.12010-11 861591 788355 73236 8.52011-12 937199 857886 79313 8.52012-13 998114 911209 86905 8.72013-14 671229 640834 30395 6

Source: Ministry of Power, ICICIdirect.com Research


The Twelfth Five Year Plan target envisages new installation of 88537 MW and 29800 MW of renewable power generation capacity. Historically, ~50% of the envisaged target has been achieved. The private sector has been increasingly contributing to the new power capacity that in future could help in achieving the set target.

Within the renewable energy, the largest installed capacity comprises wind while solar-based power generation is picking up. The Jawaharlal Nehru National Solar Mission aims to set up 20 GW capacity by 2022. The government‘s focus has been shifting to renewable energy source (RES) mainly due to shortage of traditional resources like coal, gas, etc. to meet the growing power demand.

Exhibit 8: New capacity target (MW)

Type/Sector Central State Private TotalThermal 14878 13922 43540 72340Hydro 6004 1608 3285 10897Nuclear 5300 - - 5300Total (excl RES) 26182 15530 46825 88537Renewable 29800Total (incl RES) 118337

Source: Planning commission, Ministry of Renewable Energy, ICICIdirect.com Research

As per plan, among the available sources of energy there are limitations to coal, gas, crude and water availability for power in India, leading to renewed focus on other sources like solar, nuclear and wind. Accordingly the share of utilisation of these renewable energy sources to produce power is expected to surge to 2.23% by 2016-17 from 1.55% in 2011-12.

Exhibit 9: Share of various energy sources in commercial energy production

Share in Commercial Energy Production 2000-01 2006-07 2011-12 2016-17 2021-22

Coal and lignite 66.4 70.7 68.5 67.5 66.8Crude oil 16.2 12.9 11.6 8.9 6.7Natural gas 12.1 10.5 12.6 15.8 16.0Hydro power 3.1 3.7 3.3 2.7 2.7Nuclear power 2.1 1.9 2.5 3.5 4.7Renewable energy 0.1 0.3 1.6 2.2 3.1

(%)

Source: Planning commission, ICICIdirect.com Research


Financing power Extensive capex will be needed to put up capacity to achieve the targeted power generation. Various government ministries have planned expenditure that can directly or indirectly be incurred towards developing power through various sources. These projections are based on the Twelfth Five Year Plan and the figures are bound to get revised

Exhibit 10: Ministries/department in energy sector - Planned outlay

Minsitry Outlay (| Crore)Ministry of Renewable Sources of Energy 33,033 Ministry of Coal 112,861 Ministry of Power 440,796 Ministry of Petroleum and NG 441,688 Sub-Total 1,028,378 Department of Atomic Energy 107,187 TOTAL (Energy) 1,135,565

Source: Planning commission, ICICIdirect.com Research

As per the planning commission document, the average cost of setting up a solar power plant of 1 MW is around | 8 crore. Exhibit 11: Cost as per current rates

Estimated setup cost per MW ( | crore)

Estimated electricity generation cost per kw hrs ( | per unit )

Small Hydro power 5.50–7.70 3.54–4.88Wind Power 5.75 3.73–5.96Biomass Power 4.0–4.45 5.12–5.83Biogasee Cogeneration 4.2 4.61–5.73Solar Power 7.0-8.0 7-7.5

Source: Planning Commission, ICICIdirect.com Research

As per the Power Ministry, the achievable targets for renewable energy by FY17 are set out as below. In various media interviews, Piyush Goyal, Minister of Power, Coal and Renewable Energy and Upendra Tripathi, Secretary, Ministry of New and Renewable Energy, have expressed their intention to scale up renewable energy capacity to 100000 MW by 2022. Exhibit 12: Capacity addition per annum in MW expected to be achieved

Existing capacity Addittion as per target FY17 Annual addittion Small Hydro power 3804 2100 700Wind Power 21136 15000 5000Bio Power 4120 2700 900Solar Power 2632 10000 3333Total Capacity 31692 29800 9933

Source: ICICIdirect.com Research

As per planned targets, | 55400 crore of annual capex (| 166200 crore in three years) will be required to set up renewable power projects (wind and solar). Considering that around 70% of it is expected to be financed via debt, ~| 38,000 crore needs to be financed through project financing. As the average ticket size of a solar or wind project is small (~| 50-500 crore), it may not be exactly in the optimum range of mainstream banks. Also, due to technical assistance provided to developers, dedicated power finance companies like PFC, REC and PFS become preferred partners.

For PFS, we have factored in loan book growth of 77%

CAGR to | 14260 crore by FY16E, which is an addition of

| 9700 crore in two years. If we consider 60-70% of PFS’

incremental lending goes to renewable energy financing,

PFS’ market share may be in the range of 5-8% of the total

capex requirement

Annual capex expected for FY15 to FY17

Annual capacity addition

expected (MW)

Price per MW | crore

Capex cost | crore

Wind Power 5000 5.8 28750Solar Power 3333 8.0 26667Total capex 55417


Investment Rationale Renewable energy loan growth driver…

PFS, as a strategy, is focused on being a financier to small and medium power projects. PFS’ management team has significant experience in the power sector and the financial services industry, which enables them to identify specific requirements of power project developers and offer structured products and services.

PFS had started focusing on its debt financing segment post FY12. Since then, PFS’ advance has grown exponentially at a CAGR of 93% from | 632 crore in FY12 to | 4530 crore at the end of FY14. PFS initially had the largest exposure to thermal power projects at ~60% at the end of FY12. Most of these projects were primarily sourced as a reference from parent company PTC India, which helped it to expand its loan book initially. However, of late, the company has been able to garner business on its own with the share of thermal projects coming down to ~35% by the end of FY14 as exposure to renewable energy projects increased to ~35% of the loan book from ~21% in FY12.

We have factored in the loan book will grow to | 14237 crore FY16E at a CAGR of 77%. We expect the share of renewable energy loans to go up to 52% increasing from | 1752 crore in FY14 to | 6871 crore FY16E.

Exhibit 13: Loan book break-up, tilt towards renewable

1216 1306 1373 1663 1731 2993.4 3592

1080 1221 13131765 1752 4024 6871

204222 237

456 456821 1477

188 376 431 1090 1017 1654 2297

0%10%20%30%40%50%60%70%80%90%

100%

Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 FY15E FY16E

Thermal Renewable Hydro Others


PFS has enhanced its focus on renewable energy as these projects do not have significant fuel and environmental clearance related risks and receive regulatory, fiscal and non-fiscal support ensuring faster conversion of sanctions to disbursement. For healthy fast track growth within the energy chain, especially for nimble player like PFS, solar and wind power projects are a perfect fit

Further, given the thrust of the government on renewable energy and, consequently, lot more clarity now emerging on various aspects, PFS’ management anticipates a lot of investments will happen over the next few years. As per the Ministry of New and Renewable Energy (MNRE), $35 billion of investment would be required annually to reach the target of 100,000 MW generation capacity in the next five years. The target includes both wind and solar power projects. Foreign investors and large renewable players are either building assets in this segment or setting up projects in India. Many private developers have already approached PFS with their plans to set up solar photovoltaic power plants. PFS’ management has guided that it will continue to maintain a strong focus

According to the Ministry of Renewable Energy, renewable

energy is contributing about 6.5% in the electricity mix of

the country. They have proposed that this be taken up to

about 12% in the next three years


on growing its loan book, backed by emphasis on renewable energy and within renewable, more than 60% of incremental lending booked will be from solar power projects.

Exhibit 14: Sanctions break-up

4,4795,396

4,346 4,506

8082,474

3,110 3,110

8291,279

1,179 1,179

218 850 1,668 1,668

0%

20%

40%

60%

80%

100%

FY12 FY13 FY14 Q1 FY15

Thermal Renewable Hydro Others


Opportunity in solar energy chain…

The Jawaharlal Nehru National Solar Mission (JNNSM) has chalked out a target, among others, for deployment of grid connected solar power capacity of 20,000 MW by 2022 to be achieved in three phases - first phase up to 2012-13, second phase from 2013-17 and third phase in 2017-22.

Under the second phase of JNNSM, the aim is to achieve 10,000 MW of grid connected solar power by 2017. The current solar power capacity of the country is 2,600 MW. This gives ample opportunity to investors, developers and power equipment manufacturers in developing power projects and associated transmission infrastructure

Exhibit 15: JNSSM Mission – achievement & target

1100

6171

10000

0

5000

10000

15000

20000

25000

2011-12 2012-13 2013-14 2014-15 2015-17 2017-22

MW

With increased thrust of GoI capacity additions in renewable energy may scale up

Source: Ministry of New and Renewable Energy

The cost of setting up a solar power project is in the range of ~| 7-8 crore per megawatt (MW). Hence, for scaling up capacity from 2600 MW as at end of FY14 to 20000 MW by 2022, total ~| 139000 crore of investments will be needed (assuming cost of | 8 crore per MW). At a debt-equity ratio of 70:30, the total growth opportunity is ~| 100000 crore for power finance companies over the next seven years if everything goes as planned.

As on Q1FY15, cumulative sanctions of the company stood

at |10463 crore.

JNNSM is a major initiative of the Government of India

with active participation from states to establish India as a

global leader in solar energy


VGF mechanism to aid healthy growth

So far, the government has been supporting solar power projects through the generation based incentives (GBI) and bundling scheme wherein solar energy was bundled with conventional energy. However, in view of the prevailing uncertainty about adequate availability of the central government’s unallocated conventional power, MNRE has mooted the idea of tapping the clean energy fund to subsidise the solar sector through the viability gap funding (VGF) mechanism.

The National Clean Energy Fund (NCEF) is proposed to be used as a viability gap funding measure to ensure project viability to make available solar power at an affordable tariff in the range of | 5 to | 6 per unit.

Under the VGF, the developer will be provided a viability gap fund based on his bid. The upper limit for VGF is 30% of the project cost or | 2.5 crore/MW, whichever is lower. The developer will be required to indicate his preliminary estimate of project cost to government .The developer has to put his own equity of at least | 1.5 crore/MW.

PFS aims to tap these project developers and fund the project to the extent of 70%. Hence, for a project cost of | 8 crore/MW assuming debt-equity of 70:30, PFS will provide | 5 crore. Under VGF, the government will subsidise developers up to | 2.5 crore, which is ~50% of loan advanced by PFS. The VGF mechanism, therefore, provides an opportunity for healthy growth in advances with lowest risk as developer to receive funding from the government that can be used to repay loans.

Agreement with PFC Green Energy for joint financing

PFS, further on September 10, 2014, entered into an initial agreement with PFC Green Energy for facilitating joint financing of renewable energy projects. PFC Green Energy is a wholly-owned subsidiary of Power Finance Corporation. As per the MoU, a single window will be provided to borrowers under consortium financing to achieve early financial closure. We believe the agreement will further aid PFS in being the preferred partner even for bigger solar projects. With this agreement it is also unlikely that PFC in the near future may directly compete with PFS in the renewable energy chain. REC has also ventured into financing in this space. However, at present, it has minuscule disbursement of | 135 crore of loan as at the end of FY14.

Exhibit 16: PFS already preferred partner in RES as seen from increased market share

295135

1150

482

3110

1765

0

500

1000

1500

2000

2500

3000

3500

Sanctions Disbursement

| cr

ore

REC PFC PFS

Source: Company, PFC & REC Annual Report,, ICICIdirect.com Research Sanctions and Disbursement pertaining to renewable energy projects as on FY14 of respective companies. (PFC exposure is combined of PFC standalone + PFS green energy book)

The VGF will be released in three tranches, 25% at the time

of delivery of at least 50% of the major equipment at the

site. This would be based on the cost of total procurement.

Then, 50% will be disbursed on successful commissioning

of the full capacity of the plant. The balance 25% will be

disbursed after a year of operation if it meets requirements

of generation as per guidelines. Hence, as soon as VGF is

received, the same can be utilised to repay the loans


Spreads to stay healthy aided by lofty yields with PFS as preferred financier

In its specific sector exposure, PFS has managed to maintain a healthy spread of 4.57% and NIM of 6.9% as on FY14. Owing to special structured loan products and services and the technical assistance available to the developer, small ticket size, PFS is able to command 100-200 bps higher yields on loans disbursed at various stages of completion. For many projects, PFS acts as the last mile financier and aids project completion without many delays. Since these are small sized loans, PFS can command higher rates of interest while the company may agree as it aids faster project completion without adding much to the cost.

Reported yield on advances as on Q1FY15 stood at 13.8%. Going forward, as the share of renewable energy loan gets augmented, yields may moderate to 13.3% for FY15E and to 12.9% by FY16E but are still comparable to those earned by its peers.

Exhibit 17: Yield on advance to be in range of 13-14%

10.5 10.2 9.9 9.98.7 8.2 8.3 8.2 8.5

8.7 9.19.3 9.5 9.3 8.9

13.514.1 14.5

14.7 14.3 14.2 13.813.1 13.6

13.8 13.8 13.8 13.3 12.913.6

6.07.08.09.0

10.011.012.013.014.015.016.0

Q1FY

12

Q2FY

12

Q3FY

12

Q4FY

12

Q1FY

13

Q2FY

13

Q3FY

13

Q4FY

13

Q1FY

14

Q2FY

14

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14

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14

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15

FY15

E

FY16

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%

Cost of funds Yield

Healthy Spreads


On account of smaller ticket size and preferred partner in the growing renewable energy projects, PFS is able to command best yields among its peers and, consequently, higher spreads.

Exhibit 18: Competitive YoA….

12.31 12.18

13.6

11.0

11.5

12.0

12.5

13.0

13.5

14.0

PFC REC PFS

%

Yield on Advances (FY14)

Source: Company, PFC & REC Annual Report, ICICIdirect.com Research

Exhibit 19: …aids to earn higher spreads

3.45 3.6

4.6

0.0

1.0

2.0

3.0

4.0

5.0

PFC REC PFS

%

Interest Spread (FY14)

Source: Company, PFC & REC Annual report, ICICIdirect.com Research

Spread to get compressed, going ahead, as YoA may

reduce by 80 bps to 13% FY16E


Resource mobilisation to gradually improve with scale

On the liability side, borrowings as on March 31, 2014 stood at | 3895 crore, 81% of which i.e. | 3122 crore are loans from banks and financial institutions. External commercial borrowings of | 447 crore constitute 11% of total borrowings while non convertible debentures (NCDs) and tax saving infrastructure bonds of | 325 crore account for another 8%. Borrowings have increased 7x in the last two years.

Earlier, the borrowing cost was very low for PFS - as low as 8.2% at the end of FY13 on account of higher funding from ECBs of | 418 crore (which were funded at Libor +3.25%) and low cost infrastructure bonds (coupon rate of 8.5%) put together comprising ~40% of total borrowings. NIMs, therefore, stayed very high at 9% in the past, also shored up by equity capital of | 352 crore raised via IPO in 2011.

The share of loans from banks and financial institutions in overall funding has increased to ~81% at | 3122 crore by FY14 supporting the accelerated pace of growth in FY14. Since the lending rate of banks hovers at the base rate, approximately 10% plus, the cost of funds (CoF) has, of late, gone up dragging spreads lower to 4.4% vs. 6% earlier.

Exhibit 20: Borrowing mix - FY12

NCDs25%

Infrastrcture Bonds27%

Bank loans30%

Commercial Paper

0%

ECBs18%


Exhibit 21: Borrowing mix – FY14

NCDs3%

Infrastrcture Bonds

5%

Bank loans81%

Commercial Paper

0%

ECBs11%


We believe, going ahead, it will be a challenge for the company to maintain such high NIMs. PFS, in the current quarter, has raised commercial paper (at yield of sub 9%) to manage its borrowing cost. The company has, in the past, availed refinance available under the IREDA NCEF-Scheme introduced by The Indian Renewable Energy Development Agency (IREDA). In terms of the scheme, IREDA would provide refinance at 2% per annum to financial institutions to the extent of 30% of loans extended by them for eligible renewable energy projects. The rate of interest offered by banks/institutions on refinance component should not exceed 5% per annum. By utilising the scheme, PFS was able to structure loans (| 100 crore) at specific rates for various private producers while reducing its own cost and passing on some benefit to the borrower.

It was a win-win situation for all. However, NCEF Funds provided to IREDA for FY14 have been fully utilised while for FY15, IREDA has not yet received funds from the government and the refinance scheme should get operationalised on receipt of the same.

The company is also looking to raise ECBs. As on date, it has already obtained in-principle approval from various international development finance institutions.


We have factored in that total borrowings will increase to | 12974 crore FY16E from | 3895 core in FY14. Higher share of funding will continue to be from banks (over 80%). Loans from banks and financial institutions are expected to go up by ~| 9000 crore in the next two years to ~| 11000 crore in FY16E increasing from | 3122 crore as on FY14. We have factored in PFS will raise ~| 600 crore in FY15E and ~| 1000 crore in FY16E via commercial paper- around 7% of the overall borrowing as we believe higher short-term borrowings may put pressure on ALM. Hence, we expect cost of funds, to be at 9.35% in FY15E and at 8.9% in FY16E.

…moderation in NIM to follow

Hence, we believe, NIMs may decline to 5% in FY16E but with good upsides. If the company is able to raise funds by tapping the NCDs market or raise ECBs, which we believe is highly possible, then the cost of funds may further get lowered by ~20-30 bps. The current yield on the NCDs of AAA rated issuer is in the range of 8-9%, which is less than the bank lending rate. The NIM may decline primarily as we expect the yield on asset (YoA) to reduce 80 bps on account of increased competition and increase in average ticket size of loans.

Exhibit 22: Bank loans to be major source of funding…

25.09.9 3.2 1.0 0.4

26.5

12.75.2 2.3 1.6

30.9

51.1 80.2 83.4 86.0

0.00.0

0.0 7.0 7.717.6 26.311.5 6.3 4.2

0%

20%

40%

60%

80%

100%

FY12 FY13 FY14 FY15E FY16E

NCDs Infrastrcture Bonds Bank loans Commercial Paper ECBs


Exhibit 23: …NIM compression as YoA softens while CoF to inch up

5.0

6.6

8.18.8 9.1 8.8 8.3 8.1

7.0 6.9 6.8 6.9 6.5

4.9

3.03.9

4.6 4.85.7 6.0 5.5 5.4

4.6 4.9 4.7 4.5 4.4 4.04.0

5.1

2.03.04.05.06.07.08.09.0

10.0

Q1FY

12

Q2FY

12

Q3FY

12

Q4FY

12

Q1FY

13

Q2FY

13

Q3FY

13

Q4FY

13

Q1FY

14

Q2FY

14

Q3FY

14

Q4FY

14

Q1FY

15

FY15

E

FY16

E

%

NIM Spread


NII has grown at 81.4% CAGR in FY12-14 to | 212 crore forming 70% of pre-provisioning profit. Backed by healthy loan growth of 82% CAGR in FY14-16E and NIM of 5%, we expect NII to grow at 67% CAGR to | 591 crore in FY14-16E.

Exhibit 24: NII to grow at 67% CAGR in FY14-16E

64

150212

367

591

0

100

200

300

400

500

600

700


| cr

ore

0

20

40

60

80

100

120

140

160

%

NII Growth


We expect net interest income (NII) to grow at a CAGR of

67% over FY14-16E to | 591 crore FY16E from | 291 core

in FY14, backed by healthy spreads and accelerated pace

of loan book growth


Capital adequacy still strong and set to improve…

As on March 31, 2014 PFS’ capital adequacy ratio stood at 25.2% with Tier 1 capital at 24.7%.

Further, the company is now eligible to assign lower risk weights on projects that have been commissioned and completed a year of existence. As per norms, for computing capital adequacy, projects post commercial operation date (COD) in existence for over a year of commercial operation shall be assigned a risk weight of 50%. PFS has guided that in the current quarter there are many projects, which are eligible for lower risk weights. Therefore, the capital adequacy ratio may further go up to 29% from the current 25% freeing up additional 3% capital for lending.

We believe the company is adequately capitalised for accelerated growth while further monetisation of its equity investment can also aid it to strengthen its capital adequacy ratio. Exhibit 25: Capital adequacy ratio to strengthen to 29%

719 1019 1178 1238 1377

88.3 84.3

66.6

41.6

24.7

0.010.020.030.040.050.060.070.080.090.0

100.0


0

200

400

600

800

1000

1200

1400

1600

Tier 1 capital Capital adequacy (%)


Equity investments

When PFS started operations, it had been providing equity financing also. Most projects in which it has invested have either been commissioned or are set to be commissioned in next two or three years. However, in the last two years, the equity exposure strategy no longer exists. The management is looking to monetise its existing portfolio gradually.

Exhibit 26: Monetisation of equity investment to add to respective year’s profit Project Capacity (MW) Outstanding as at 30th

June 2014 (| crore)Investment Status

N.A 1.52 Operational since June 2008PFS holds 5% on fully diluted basis in the company.

Ind Barath Energy (Utkal) Limited 700 105 Project execution is at an advanced stage and is expected to be commissioned in 2014

1320 133.38 Construction activities are in progressPFS has received FIPB approval to swap its shareholding into shares of holding company

99 61.12 Phase I (41.25 MW) is commissioned and phase II is under implementationWTG manufacturing facility housed in a group company is also commissioned

Total 301

East Coast Energy Private Limited

R S India Wind Energy Private Limited

Indian Energy Exchange Limited



Healthy return ratios…

PFS’ RoA and RoE are comparable to that of larger power players like PFC and REC even with higher capital adequacy of 25%. RoE is further like to improve as we factor in balance sheet growth backed by increased renewable power financing. Also, healthy PAT CAGR of 44.3% in FY15-16E may improve returns ratio. We expect RoE expansion by 900 bps to 25.1% in FY16E with RoA staying healthy at 3.4% in FY16E despite accelerated growth.

Exhibit 27: Return ratios to strengthen aided by healthy PAT growth

2.8

8.4

4.3 5.0 3.3 3.44.5

14.1

8.7

16.118.1

25.1

0.0

5.0

10.0

15.0

20.0

25.0

30.0

FY11 FY12 FY13 FY14 FY15E FY16E

%

RoA RoE


Exhibit 28: RoA to improve

2.983.30

3.8

0.0

1.0

2.0

3.0

4.0

5.0

PFC REC PFS

%

RoA (FY14)


Exhibit 29: RoE to come in line with peers…

21.2724.57

16.1

0.0

5.0

10.0

15.0

20.0

25.0

30.0

PFC REC PFS

%

RoE (FY14)



Strong asset quality to stay for next two years

PFS as on date has zero net-non performing assets and gross non performing assets as on Q1FY15. Although there are no bad loans, PFS creates higher standard asset provision @0.50% vs. 0.25% stipulated by the RBI.

In the restructured book, there are only three accounts totalling | 160 crore (3.5% of loan book), which have been restructured as on Q1FY15.

We do not see asset quality deteriorating sharply at least in the next couple of years as most thermal projects financed by PFS have reached the completion stage without much delay. Also, going ahead, lower exposure to thermal or coal linked projects and higher focus on low gestation and highly subsidised renewable energy projects will help maintain healthy asset quality.

Also, involvement of the senior management in each sanction leaves less room for assets to turn non-performing at later stages.

Going ahead, as the loan book size expands we expect slippages to take place and have built in GNPA of | 71 crore (0.75% of advances) in FY15E and | 140 core (0.98% of advances) in FY16E. Accordingly, the company is expected to make adequate provisioning to curtail NNPA to zero.

Exhibit 30: Lower asset quality pressure

0.0 0.0

42.9

71.4

140.2

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0


| Cr

ore

0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

1.20%

GNPA GNPA %



Infrastructure & finance industry veterans at the helm

PFS’ board has members who are former managing directors of various financial institutions or have at some point held senior positions at various government ministries relating to power or infrastructure. Through their vast experience and contacts built over the years, the management has access to quality information (especially needed in the power sector where government regulation/approvals/policies matter more) beforehand, which aids in formulating a concrete future growth path for the company.

Exhibit 31: Board of directors

Deepak Amitabh – Chairman Member of civil services and the current CMD of PTC IndiaDr Uddesh Kohli Former CMD of Power Finance CorporationS. S. Kohli Former CMD IIFCL, PNB, SIDBI and Punjab and Sind BankVed Kumar Jain Known authority on direct taxes, was on Board of Governors of Indian Institute of Corporate AffairsSK Tuteja IAS (Retd), former Secretary to Government of IndiaMK Goel Present CMD of Power Finance CorporationCR Muralidharan Former wholetime member of IRDA. Worked with RBI for more than 30 yearsRM Malla – Managing Director & CEO Former CMD - IDBI Bank Ltd, CMD – SIDBI and Chief Executive Officer of IFCI Ltd

Dr Ashok Haldia - Director (Operations) Former Secretary, ICAI and Technical Advisor on Board of International Federations of Accountants

Dr Pawan Singh - Director (Finance) Member of the civil services. Former Director (Finance) of Delhi Power Company, Delhi Transco. Has worked in various infrastructure sector companies like Power Grid, Indian Railways, Tata Steel, etc


For daily operations, the company has a small core member team of 14 highly qualified employees (engineers, CAs or MBAs from reputed management institutes) with three to four years experience in their respective profiles. With such a small core team, the employee cost is comparatively low at 3.5% of NII amounting to | 7.4 crore. Employee expense has increased from | 4.4 crore in FY12 to | 7.4 crore in FY14. We expect the same to increase to | 16.5 crore by FY16E. PFS currently does not have an employee stock option scheme.

Strong promoter backup…

PFS benefits from the power sector expertise, network and relationships of its promoter PTC and its affiliates, which provides early access to business opportunities. In the past, PFS has received many of its principle investment and debt financing opportunities from references by PTC. For example, most of the 10 principal investments, particularly in the initial stages of operations, were developed out of initial references made by PTC.

PTC is an established brand name in the Indian power sector while PFS benefits from the associated goodwill.


Risks & concerns Weak transmission and distribution chain may impact new capacity addition

There are huge plans to set up solar power projects estimating capacity will reach 100,000 MW for solar alone by FY22. However, we do not see simultaneous plans to set up large transmission and distribution lines to support the power production. Distribution sector is the weakest link in the power sector value chain and is threatening to derail the entire process of power sector reforms. While the power generation sector in the country is struggling to meet burgeoning demand, the distribution sector has been reeling under losses. Hence, even though we are assuming solar capacity of ~20000 MW will be added by FY17, there may be downside risk to the same due to lack of distribution set-up.

Existing state discoms continue to be under pressure

Major challenges currently being faced by the distribution sector include accumulated losses of most discoms across the country and their poor net worth, which is severely hindering their finances. This can severely affect the PPAs entered into by companies and, in turn, delay the date of commencement.

Under achievement of targets set by ministry

While the progress so far in the Twelfth Plan has been decent, any shortfall in achievement of the thermal or renewable energy target can affect the loan growth of the company.

Withdrawal of concessions provided to renewable energy developers

PFS is a preferred financier for renewable energy projects that is the core focus area for the future. Currently, the Ministry of New and Renewable Energy is providing various fiscal incentives such as generation based incentives, accelerated depreciation, concessional excise and customs duties for the promotion of renewable energy sources in the country, which has led to increased private sector participation. Withdrawal of any incentives may impact the growth of the developers and, in turn, PFS’ growth and margins.

Asset quality deterioration over long term

As on Q1FY15, the GNPA of PFS has zero GNPA and the restructured book is also not a cause for worry. However, with exponential growth, there can be an increase in the NPAs, which can adversely affect profitability. We have factored in a GNPA ratio of 1% in FY16E. Any sharp rise can hamper profitability that, on a lower base, can erode profits.

Past equity investments may turn bad

The company’s investment book stands at | 305 crore. There are four projects where it has provided equity. Most projects have reached the completion stage. Therefore, there is very limited risk of equity investment monetised at a loss. However, any contingency in any of this project may require a write-down affecting profits for that year.

Concentration risk

PFS’ lending to top 10 borrowers currently constitutes ~40% of its total book. Although it has come off from over 80% to 40%, the book needs to be further diversified to avoid dependability on few clients.


Financials NII growth robust on small base PFS’ net interest income has doubled each year between FY10 and FY13 (100% CAGR from | 19 crore in FY10 to | 150 crore in FY13) mainly aided by an accelerated growth in advances (10x increase from | 272 crore in FY10 to | 2072 crore in FY13). In FY14, advances grew to | 4521 crore growing robustly 115% YoY. However, NII growth moderated to 41% as CoF increased 110 bps to 9.5% in FY14 from 8.2% in FY15. Going ahead, we have factored in NII will grow at 67% CAGR in FY14-16E aided mainly by an expansion in the core loan book to | 14,237 crore from | 4,521 crore, growth of 77% CAGR in FY14-16E. Exhibit 32: NII growth robust

19 3064

150212

367

591

0

100

200

300

400

500

600

700

FY10 FY11 FY12 FY13 FY14 FY15E FY16E

| cr

ore

NII

100% CAGRFY10-13

67% CAGR FY14-16E


Profit on sale of equity investments bumps up non interest income At the time of set-up, PFS had also been participating in equity in certain power projects, which it has stopped since last year. In FY12, PFS monetised its investment in the India Energy exchange at a profit of | 134 crore while in FY14, PFS divested its stake in Meenakshi Energy Pvt Ltd at a profit of | 82 crore. In both these years, non interest income, therefore, boosted profits. Exhibit 33: Non operating income break–up

12.4

134.1

1.9

83.6

2.0 0.5

11.0

9.9

19.0

31.2

53.0 79.6

4.35.0

4.9

4.6 5.0 6.06.9 25.2 9.56.7 4.2 2.9

0%10%20%30%40%50%60%70%80%90%

100%

FY11 FY12 FY13 FY14 FY15E FY16E

Profit on sale of investment Fee income Sale of Power Others


PFS has made a strategic equity investment in earlier years

of its operation. As and when the company books profit in

those investments, non interest income of the company

gets bumped up


As at the end of Q1FY15, equity investments of PFS stood at | 305 crore. We have not built in any major divestments in the next two years. Therefore, non interest income growth will come purely from fee income.

Fee income has been in the range of 6-7% of total income. Going ahead, the company has guided that it will scale up its advisory and consultancy services, which will jack up its fee income. We have built in fee income will grow at a healthy 60% CAGR in FY14-16E to | 80 crore (5% of total income).

Cost to income ratio comfortable The cost to income (C/I) ratio of the company was high at 11.7% in FY12 and 12.3% in FY13 as the company readied itself for expansion. PFS moved out from its parent’s office to its new registered office in Delhi and also expanded its team from eight members to 14. The cost to net income ratio, therefore, was high in these two years. We believe C/I will continue its downwards trajectory as the company expands its operation leveraging its existing setup. However, it may still be high at 9% for FY15E and 7% in FY16E as the company continues to be on a high growth phase. We expect total expenses to grow from | 335 crore in FY14 to | 502 crore by FY16E. Exhibit 34: Operating efficiency to increase with size

11.7% 12.3%

9.9%8.9%

7.1%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%


CoI


Exhibit 35: Cost to income (C/I) higher than peers as company in expansion phase

2.7%3.53%

9.9%

0.0

0.0

0.0

0.1

0.1

0.1

0.1

PFC REC PFS

%

C/I (FY14)

Source: Company, PFC & REC Annual Report, ICICIdirect.com Research

C/I high as company is in its expansion phase


PAT to grow at healthy CAGR of 44% over FY14-16E On a small base, the company has registered PAT growth of 104% in FY11-13. We expect the company to register a PAT CAGR (excluding profit on sale of investment) of 87% in FY14-16E aided by 67% CAGR of NII in FY14-16E and improved operating efficiency. Any divestment from equity investment book (| 305 crore as on Q1FY15) can add to the respective year’s profit. We expect PAT to grow to | 430 crore by FY16E from | 124 crore earned in FY14. Exhibit 36: PAT excluding profit on sale of investment to grow at 87% CAGR in FY14-16E

19.9

124.1

262.7

430.4

102.3

0.050.0

100.0150.0200.0250.0300.0350.0400.0450.0500.0



149% CAGRFY12-14

86% CAGR FY14-16E



Valuation PFS is significantly small in size in terms of the loan book compared to REC (Q1FY15 advances:| 155234 crore) and PFC (Q1FY15 advances: | 195919 crore) - the giants in the power financing sector. Both PFC and REC’s matured and seasoned loan books have seen a tough cycle in the current infrastructure slowdown with accumulated restructured accounts to the tune of | 13206 crore – PFC and | 32300 crore - REC and NPAs of little under 2% of the loan book as of Q1FY15. However, PFS with its relatively new credit portfolio has no major NPAs while its restructured portfolio is also small at | 160 crore (3.5% of loans). We, therefore, do not anticipate near term pressures on asset quality for PFS and have built 1% GNPA by FY16E. Better asset quality than peers is currently a premium for PFS vs. peers. PFS, post listing i.e. FY11 traded at 0.8x one year forward ABV. Later, due to power sector specific concerns, the multiple eroded to 0.67x ABV. PFS manages to earn 18% RoE despite high equity capital on its books. Therefore, P/ABV is considered as a key valuation matrix. At the CMP of | 47, PFS is trading at 1.5x FY16E ABV of | 32. We have valued the stock at 1.6x FY16E ABV considering the strong growth and return ratios expected to improve further, thereby assigning a target price of | 53 providing an upside of 12%.

Exhibit 37: Comparative matrix – PFS sharp earnings growth narrowing P/ABV multiple gap with peers

s

M.Cap (| cr) CMP FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E Key Business area

PFS 2692 47 12.7 10.0 6.1 2.0 1.7 1.5 5.0 3.3 3.4 16.1 18.4 25.8 Higher exposure to Generation

REC 29110 295 5.4 5.4 4.1 1.4 1.2 1.1 3.3 3.2 3.1 24.6 23.8 22.8 Higher exposure to Transmission

PFC 37245 282 6.0 7.0 5.7 1.4 1.3 1.1 3.0 2.5 2.3 21.3 18.2 17.0 Focus on renewable energy chain

PE (x) RoE (%)P/ABV (x) RoA(%)


Exhibit 38: P/ABV band -one year forward

0

10

20

30

40

50

60

70

Apr-1

1

Oct-1

1

Apr-1

2

Oct-1

2

Apr-1

3

Oct-1

3

Apr-1

4

Oct-1

4

(|)

Price (|) 0.5x 0.7x 1x 1.5x 2x


Good asset quality and fast track loan growth is currently a

premium for PFS vs. peers


Exhibit 39: DuPont Analysis

Particulars FY13 FY14 FY15E FY16ENet interest income/ Avg. assets 6.2% 5.1% 4.6% 4.6%Non-interest income/ Avg. assets 1.5% 3.0% 0.8% 0.7%Net total income/ Avg. assets 7.6% 8.1% 5.5% 5.3%Operating expenses/ Avg. assets 0.9% 0.8% 0.5% 0.4%Operating profit/ Avg. assets 6.7% 7.3% 4.9% 4.9%Provisions/ Avg. assets 0.3% 0.5% 0.4% 0.3%Return on avg. total assets (RoA) 4.3% 5.0% 3.3% 3.4%Leverage (Avg assets/ Avg equity) 2.03 3.23 5.49 7.62Return on equity (RoE) 8.7% 16.1% 18.4% 25.8%


The loan book is expected to double in FY15E, thereby leveraging capital faster to 5.5x from 3.2x in FY14. We estimate PAT will grow at 44.3% CAGR in FY14-16E to | 430 crore by FY16E aiding healthy RoA of 3.4% and RoE at 25.8%. Exhibit 40: Summary Financials

NII Growth PAT Growth P/E ABV P/ABV RoA RoE(| cr) (%) (| cr) (%) (x) (|) (x) (%) (%)

FY13 150 133.3 104 (32.4) 25.4 21.8 2.2 4.3 8.7 FY14 212 40.9 208 99.4 12.7 23.9 2.0 5.0 16.1 FY15E 367 73.2 265 27.4 10.0 27.0 1.7 3.3 18.4 FY16E 591 61.3 431 62.8 6.1 31.9 1.5 3.4 25.8



Financial Summary Exhibit 41: Income statement

| Crore(Year-end March) FY12 FY13 FY14 FY15E FY16EInterest Earned 133.0 251.3 420.0 951.2 1,554.4 Interest Expended 68.6 101.2 208.4 584.6 963.2Net Interest Income 64.3 150.1 211.6 366.5 591.2

% growth 115.3 133.3 40.9 73.2 61.3

Non Interest Income 174.2 35.2 126.2 64.3 88.0Net Income 238.6 185.3 337.8 430.8 679.2Employee cost 4.4 5.8 7.4 11.5 16.5Other operating Exp. 23.5 16.9 26.2 28.5 33.7Operating Income 210.7 162.6 304.2 390.7 628.9Provisions 9.0 7.3 19.3 28.1 37.9

PBT 201.6 155.3 284.9 362.6 591.0Taxes 47.6 51.1 77.2 97.9 160.2

Net Profit 154.0 104.2 207.7 264.7 430.9

% growth 316.0 -32.4 99.4 27.4 62.8EPS (|) 2.7 1.9 3.7 4.7 7.7


Exhibit 42: Balance sheet

| Crore

(Year-end March) FY12 FY13 FY14 FY15E FY16ESources of FundsCapital 562.1 562.1 562.1 562.1 562.1Reserves and Surplus 601.2 664.1 786.8 965.8 1254.4Networth 1163.3 1226.1 1348.9 1527.9 1816.5Borrowings 760.3 1586.8 3895.1 8650.1 12974.1Other Liabilities & Provisions 32.1 86.1 169.7 216.0 306.8Total 1,956 2,899 5,414 10,394 15,097

Applications of FundsFixed Assets 25.8 22.6 25.3 21.1 16.9Investments 421.1 529.2 401.0 410.8 387.3Advances 1093.9 2072.2 4530.8 9506.3 14259.5Other Assets 414.8 275.0 456.6 455.7 433.6Total 1,956 2,899 5,414 10,394 15,097



Exhibit 43: Key ratios (Year-end March) FY12 FY13 FY14 FY15E FY16EValuationNo. of Equity Shares 56.2 56.2 56.2 56.2 56.2EPS (|) 2.7 1.9 3.7 4.7 7.7BV (|) 20.7 21.8 24.0 27.2 32.3BV-ADJ (|) 20.7 21.8 23.9 27.0 31.9P/E 17.2 25.4 12.7 10.0 6.1P/BV 2.3 2.2 2.0 1.7 1.5P/adj.BV 2.3 2.2 2.0 1.7 1.5Yields & Margins (%)Yield on interest earning assets 13.2 14.4 12.4 13.3 12.9Avg. cost on funds 10.7 8.6 7.6 9.3 8.9Net Interest Margins 5.6 8.3 6.2 5.1 4.9Spreads 2.5 5.8 4.8 4.0 4.0Quality and EfficiencyCost / Total net income 11.7 12.3 9.9 9.3 7.4GNPA% 0.0 0.0 0.9 0.8 1.0NNPA% 0.0 0.0 0.0 0.0 0.0RONW (%) 14.1 8.7 16.1 18.4 25.8ROA (%) 8.4 4.3 5.0 3.3 3.4


Exhibit 44: Key growth rates (% growth)

(Year-end March) FY12 FY13 FY14 FY15E FY16ETotal assets 15.1 48.2 86.7 92.0 45.3Advances 73.0 89.4 118.6 109.8 50.0Borrowings 44.0 108.7 145.5 121.1 50.2Total Income 182.2 -6.7 90.6 85.9 61.7Net interest income 115.3 133.3 40.9 73.2 61.3Operating expenses 147.9 -18.6 47.6 19.4 25.3Operating profit (excl trading) 415.8 112.4 89.3 77.1 61.8Net profit 316.0 -32.4 99.4 27.4 62.8Book value 14.3 5.4 10.0 13.3 18.9EPS 316.0 (32.4) 99.4 27.4 62.8



ICICIdirect.com coverage universe (NBFC) CMP M Cap(|) TP(|) Rating (| Cr) FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E

IDFC (IDFC) 145 174 Buy 21,965 11.9 12.9 14.5 12.2 11.2 10.0 1.5 1.4 1.2 2.5 2.7 3.0 12.6 12.6 12.4LIC Housing Finance (LICHF) 339 370 Buy 17,112 26.1 29.7 37.4 13.0 11.4 9.1 2.4 2.1 1.8 1.5 1.4 1.5 18.8 18.5 19.8Reliance Capital (RELCAP) 448 562 Hold 10,996 30.6 31.4 42.7 14.7 14.3 10.5 1.0 1.0 0.9 2.3 1.6 1.9 8.0 5.9 7.8HDFC (HDFC) 1,045 1,056 Hold 160,710 34.9 39.4 44.9 30.0 26.5 23.2 6.0 5.4 4.8 2.6 2.5 2.5 20.6 21.0 21.7PTC India Financial Services 47 53 Buy 2,692 3.7 4.7 7.7 12.8 10.0 6.2 2.0 1.8 1.5 5.0 3.3 3.4 16.1 18.4 25.8

RoE (%)Sector / Company

EPS (|) P/E (x) P/ABV (x) RoA (%)

Source: ICICIdirect.com Research


RATING RATIONALE ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction; Buy: >10%/15% for large caps/midcaps, respectively; Hold: Up to +/-10%; Sell: -10% or more;

Pankaj Pandey Head – Research [email protected]

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ANALYST CERTIFICATION We /I, Kajal Ganshi CA, Vasant Lohiya CA and Sheetal Ashar CA research analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our personal views about any and all of the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Analysts aren't registered as research analysts by FINRA and might not be an associated person of the ICICI Securities Inc.

Disclosures: ICICI Securities Limited (ICICI Securities) and its affiliates are a full-service, integrated investment banking, investment management and brokerage and financing group. We along with affiliates are leading underwriter of securities and participate in virtually all securities trading markets in India. We and our affiliates have investment banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. Our research professionals provide important input into our investment banking and other business selection processes. ICICI Securities generally prohibits its analysts, persons reporting to analysts and their dependent family members from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover.

The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities. While we would endeavour to update the information herein on reasonable basis, ICICI Securities, its subsidiaries and associated companies, their directors and employees (“ICICI Securities and affiliates”) are under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities is acting in an advisory capacity to this company, or in certain other circumstances.

This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return of investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities and affiliates accept no liabilities for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice.

ICICI Securities and its affiliates might have managed or co-managed a public offering for the subject company in the preceding twelve months. ICICI Securities and affiliates might have received compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of public offerings, corporate finance, investment banking or other advisory services in a merger or specific transaction. It is confirmed that Kajal Gandhi CA, Vasant Lohiya CA and Sheetal Ashar CA research analysts and the authors of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months. Our research professionals are paid in part based on the profitability of ICICI Securities, which include earnings from Investment Banking and other business.

ICICI Securities or its subsidiaries collectively do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report.

It is confirmed that Kajal Gandhi CA, Vasant Lohiya CA and Sheetal Ashar CA and the authors of this report or any of their family members does not serve as an officer, director or advisory board member of the companies mentioned in the report.

ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. ICICI Securities and affiliates may act upon or make use of information contained in the report prior to the publication thereof.

This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction.

october 29, 2014 ptc india financial services...

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