 "Should investors at PTC India Financial be worried?")
When peers such as Rural Electrification Corporation (REC) and Power Finance Corporation (PFC) were saddled with huge exposure to state electricity boards and thermal power projects, PTC India Financial Services (PFS), concentrated on the less-tapped renewable energy space, apart from lending to infrastructure projects such as roads, ports and railways, making it a preferred power sector financier.
Now, however, with the asset quality issue sparing nobody, there is also a shadow over PFS. Trouble for it started brewing in FY15, when its gross non-performing assets (NPA) ratio rose above one per cent of the total. Since then, asset quality has come under pressure and PFS closed FY16 with a gross NPA ratio of 3.4 per cent. And, the first quarter of FY17 saw this number rise to 5.83 per cent, way higher than the 3.34 per cent and 2.55 per cent of PFC and REC, respectively.
Three accounts totalling Rs 235 crore became NPAs. Consequently, the net interest margin was impacted. It was down 190 basis points year-on-year at 4.6 per cent in the June quarter, due to reversal of interest income recognised on these loans.
Despite these, analysts say it is too early to advise caution on the scrip, as the accounts were already identified as stressed and adequately provided for. “Asset quality is not alarming, for now. I will worry when NPAs come from loans to renewable projects,” says an analyst from a domestic brokerage.
A report by Sharekhan highlights that the brokerage doesn’t expect significant near-term incremental provision pressure for the same assets and robust growth in advances (at Rs 9,074 as on June 30, up 38 per cent year-on-year) should aid profitability and fee income. In fact, the key operating parameters remained strong in the June quarter, it says.
Despite net interest income (Rs 99 crore) inching up by only two per cent year-on-year due to interest reversal, pre-provisioning profit at Rs 105 crore grew by 11 per cent, while net profit expanded by 10 per cent to Rs 67 crore.
As operations remain strong, six out of eight analysts polled on Bloomberg maintain their ‘buy’ recommendation on PFS after the quarterly results, with a target price of Rs 55 (a 48 per cent upside from the current market price of Rs 37).
