PFS Go­ing Cheap amid Re­vival Talk

The Economic Times - - Markets & Finance - SU­RAJ SOWKAR

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.

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