Buy PTC India Financial Services Ltd For Target Rs.90.00 - Sharekhan

Key points

*  PTC India Financial Services (PFS) stands to benefit from the strong push by government to the renewable energy sector (mainly solar and wind) which should result in a robust growth in loan book (35% CAGR over FY2014-17). About 70% of the incremental disbursement will be from the renewable segments (loan sanction pipeline of Rs7,000 crore or 1.2x of the existing loan book) which has a lesser quality issues due to low gestation period, lesser fuel supply risk and fiscal support from the government.

*  Given the favourable interest rate scenario, the interest spreads may sustain at healthy levels (~4.5%). Any likely downward movement in hedging cost will further reduce the funding cost. The company also has ~Rs240 crore of equity investments in power projects which has appreciated significantly and will result in substantial gains going ahead.

*  We expect PFS to register a strong growth in earnings (~40% CAGR over FY2014-17) excluding one-off gains in FY2014) without factoring in gains on equity investment. The asset quality is likely to remain robust and the company is likely to deliver high RoAs (~3.5%) which leaves further scope for rerating. We have revised our earnings estimates upwards for FY2016 and FY2017, and value the stock at Rs90 (2.5x FY2017 BV) and maintain our Buy rating.

 

Price target revised to Rs90

We expect PFS to register a strong growth in earnings (~40% CAGR over FY2014-17 excluding one-off gains in FY2014) without factoring in the gains on equity investment. Asset quality is likely to remain robust and the company is likely to deliver high return on assets (RoAs; ~3.5%) which leaves further scope for rerating. We have revised our earnings estimates upwards and value the stock at Rs90 (2.5x FY2017 book value [BV]) and maintain our Buy rating.

 

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