PTC India Financial Services Ltd IPO Review (Apply)

Issue Date: Mar 16 - Mar 18
Price Band: Rs 26 - 28
Market Cap (Rs Cr): 1,461 - 1,574
Issue Size (Rs Cr): 407 - 439
Fresh Issue (Rs Cr): 332 - 357
Offer for Sale (Rs Cr): 76 - 82

Issue Objects

Augment capital base to meet the future capital requirements arising out of growth of business.

PTC India Financial Services (PFS) a non banking financial institution (NBFC) promoted by PTC India to make principal investments in, and provide financial solutions for companies with projects across the energy value chain. PFS provides both equity and debt financing including short term and long term debt including as well as structured debt financing. PFS also provides fee based financial services and financing against certified carbon credit emissions The company emissions. has been classified as Infrastructure Finance Company by RBI.

PTC currently holds 77.60% of equity share capital in PFS. GS Strategic Investments (an affiliate of The Goldman Sachs Group, Inc.) and Macquarie India Holdings (an affiliate of The Macquarie Group) each hold 11.20% of the company’s equity share capital.

1. Equity Investments - The focus of equity investment is in brown field & green field projects, backed by promoters with proven track record, good growth prospects and clearly defined exit routes. Their investment horizon tends to focus on the short to medium term. They also provide the last mile equity to power projects as and when required depending upon the project viability, its progress and their investment guidelines.

2. Lending - PFS offers debt assistance to projects subject to exposure limits stated earlier. PFS structures the debt assistance taking into consideration factors like needs of the borrowing entity, market conditions, regulatory requirements, risks and rewards from the projects. PFS provides debt assistance to projects in the entire energy value chain i.e. power projects, fuel sources, related infrastructure like gas pipelines, LNG terminals, ports, equipment manufacturers like transformers, conductors, insulators, cables etc; which are technically and economically viable.

3. Fee Based Services - PFS aspires to leverage its wide experience base in executing small and large offerings and the capacity to play the role of an advisor and arranger for power projects. With a core team of in-house power sector professionals, PFS strives to help its clients to become more competitive, effective and successful. PFS expects to build a formidable presence in the area of Finance Advisory and Funds Syndication in coming future.

4. Carbon Financing - PFS undertakes financing transactions through structured finance instruments tailor made to meet requirements of the projects PFS envisages a significant growth in emission reduction activities in projects. India and, hence, sees diversified opportunities in the Carbon Finance Business. In the next three years PFS proposes to build a portfolio of more than 3 million carbon credits.

Industry Scenario

• The total energy consumption in India is estimated to grow from 566 Mtoe in 2006 to 1280 Mtoe in 2030. This implies growth at a CAGR of 3.5% CAGR in India's energy requirement over the next 25]30 years and hence, there is a huge potential for investments in the energy sector in India.
• According to the Integrated Energy Policy report dated August 2006 issued by the Planning Commission, India would require additional capacity of about 220]233 gigawatt (“GW”) by 2012, 306]337 GW by 2017 and 425]488 GW by 2022, respectively, based on normative parameters in order to maintain a 8-9% GDP growth rate.
• The total capacity addition during the past 25 years between the 6th and the 10th Five-Year Plans was approximately 91,000 MW. A total capacity addition of 78,700 MW is planned for the 11th Five-Year Plan which should result in significant investments in the power generation
• The aim for the 11th Plan i.e. by 2012 is a capacity addition of 15,000 MW from renewables. By the end of the 11th Plan, renewable power capacity could be 25,000 MW in a total capacity of 2,00,000 MW accounting for 12.5% and contributing around 5% to the electricity mix. A capacity addition of around 30,000MW is envisaged for the 12th and 13th Plans.
• Renewable power capacity by the end of the 13th plan period i.e. by 2022 is likely to reach 54,000 MW, comprising 40,000 MW wind power, 6,500 MW small hydro power and 7,500 MW biopower, which would correspond to a share of 5% in the then electricity-mix.

Valuations

The company’s market cap is coming to Rs 1,461-1574 Cr on an upper and lower price band of Rs 26-28. The company’s P/BV comes to 1.4 times its post issue book value of 18.2 on an upper price band of Rs 28. REC and PFC having exposure to power infrastructure financing are trading at a P/BV of 1.7 and 1.8 times their book values. Though PFS is not directly comparable to the REC and PFC considering their long standing experience in power financing and robust balance sheets, we believe valuations of PFS are at a discount as PFS also has significant equity investments in greenfield and brownfield projects which deserve a premium over book value. We recommend investors to subscribe the issue.