PTC India Financial Service - Go For It

PTC India Financial Services

Offer:

PTC India Financial Service (PFS) a non-banking financial company promoted by PTC (Power Trading Corporation) is entering the capital market with an offering of 15.67 crore equity shares of face value of Rs 10 each. Of the total issue, 12.7 crore equity shares are a fresh issue by the Company and 2.92 crore equity shares are being offered for sale by Macquarie India Holdings. The price band is fixed at Rs 26 – Rs 28. An additional Re1 discount is being offered to retail customers. At the upper and lower end of the price band PFS intends to raise Rs 351 crore and Rs 326.9 crore (after discount to retail shareholders and the offer for sale by one of the strategic investors). The company intends to utilize the proceeds from the fresh issue for augmenting its capital base to meet its future capital requirement arising out of growth in the company’s business.

Valuation:

The company has just three full years' operation and has shown a strong growth during this time. The book value of PFS has increased from Rs 12.27 per share at the end of FY08 to Rs 15.29 per share at the end of December 2010. At the lower and higher end of the offer price the valuations work out to 1.43 and 1.5 times of the book value at the end of December 2010. This offer is at a discount of 31 per cent to PFCs P/BV and 24 per cent to RECs P/BV.  We feel a part of this discount is justified as these companies have longer periods of operation and far bigger balance sheets than PFS.

Business and Financials:

PFS' primary business is to make investments in the project across the energy value chain. In the last three years of its operation the Company has shown a robust growth in its total assets, total income and profit after tax. They have grown at a compounded annual growth rate (CAGR) of 191 per cent, 312 per cent and 294 per cent respectively over FY2008-10. PFS provides both equity and debt financing to the companies. The company has approved equity commitments for ten companies for an aggregate of Rs 564 crore and has approved debt commitments for 31 companies for an aggregate of Rs 2257 crore. PFS primarily sources its funds from non-convertible debentures and is even looking to raise funds through an ECB. It is in the process of raising USD 26 million from DEG, Germany and USD 50 million from IFC. This will help the company to reduce its cost of funds.

Currently, NIM of PFS is around 6.5 per cent as two-third of its lending is for a short term that commands a higher rate. But going forward it will come down as share of longer term funds that commands a lesser margin of 2.9 per cent will represent a larger part of the book.

One thing that provides the company a competitive advantage is that its investment in projects is at an earlier stage and is always at par, whereas the exit is provided either through an IPO or through buy back with an IRR of 23.6 per cent post-tax or a strategic sale.

Therefore, looking at the valuation of the offer and business of the company, we ask our readers to subscribe the issue.