PFS Going Cheap amid Revival Talk
PTC Financial Services (PFS), a state power financing company, has followed a conservative path while lending over the last few years – it used to lend to one out of every seven projects it got. But with an improved outlook and talk of an economic revival, PFS is planning a more aggressive approach and looking to double its loan book in 15 months. “Our book size is only .` 5,000 crore at present, which will become .` 10,000 crore by June 2015,” said Rajender Mohan Malla, CEO and MD. “Given our low base, such growth is achievable.” The conservative approach in the past has played well for the company: while other financing companies are struggling with high NPAs, PFS has zero net non-performing assets. But now, the company believes that such risks will be less, going forward, and hence, it’s not the time to be so conservative. The company, in fact, plans to expand its portfolio in the renewable energy space. “In the renewable energy space, gestation period is small and other challenges such as coal and gas are also less. In addition, the state government has been active in awarding renewable jects,” explained Malla.
At present, renewable energy projects are 30% of the portfolio, which will become 6570% in one year. The rest will be thermal power and distribution projects.
On the financial front, PFS had a return on assets (ROA) of 3.8% in FY14 while its bigger peers such as PFC and REC had an annualised ROA of 3% and 3.2%, respectively, in the first nine months of FY14. March quarter results have not been declared yet. “We have the highest rating in term loans, this helps us generate such high ROA,” said Malla. “Going ahead, we will be able to sustain this kind of returns.”
The improved investor sen-
At current market price, the company's stock is trading at a price-to-book value of 0.9
pro- timent in the stocks of power and financing companies on the back of a new gover nment has so far not benefited the stock perfor mance of PFS like its bigger peers such as the Power Finance Corporation (PFC) and the Rural Electrification Corporation (REC). As a result, it is one of the cheapest infrastructure financing stocks at present.
At current market price, the company's stock is trading at a price-to-book value of 0.9. On the other hand, PFC and REC are trading at a P/BV of 1.5 and 1.7, respectively. Over the last few years, private sector power projects have seen higher stress compared to state-owned utilities. However, given the healthy asset quality and return on assets, the concern appears to be unwarranted.