Govt’s thrust on renewable energy to give a leg-up to PFS
Renewable energy is driving the loan book at PTC India Financial Services—in December, the segment constituted 38% of the loan book
After languishing below ₹ 30 for three years till May last year, the PTC India Financial Services Ltd’s(PFS) stock has doubled to ₹ 62. The intervening period saw the government scaling up its total renewable energy capacity target to 175,000 megawatts (MW). The installed renewable power capacity as of December stood at 33,800MW, according to the 2014-15 Economic Survey.
The sharp rise in target capacity surprised many. Expecting a surge in demand for loans, institutional investors are buying PTC India’s shares. Between June and December last year, the shareholding of the foreign and domestic institutional investors rose in PTC India. If indeed loan demand picks up, the firm will have a head-start. The renewed thrust (by the government) provides a huge opportunity to the lending operations of PTC India, Antique Stock Broking Ltd said in a note.
The renewable energy segment is already driving the loan book of the company. In December, it constituted 38% of the company’s loan book. More importantly, the majority of the loan approvals are happening in this segment. In the December quarter, 73% of the incremental sanctions were in the renewable energy segment. With a sanction pipeline of ₹ 7,000 crore (loans to be disbursed), if new projects materialize, analysts expect the PFS loan book to grow at a robust pace. Antique Stock Broking and Centrum Broking Ltd forecast the firm’s loan book, on an average, to grow by about 40% per year over the next two fiscal years. One area where PTC India needs to show improvement is return ratios. Due to the high cost of funds, the net interest margins, or the difference between interest earned on loans and interest paid on deposits, have softened in recent quarters. As a result, return on assets (RoA) also fell. RoA indicates the efficiency at which the company is using its assets to generate earnings.
While analysts expect a looser monetary policy to help lower borrowing costs, it is important that the company arrests the trend towards softening margins. That can help the stock, which is trading at almost two times the next financial year’s estimated book value per share, build on the gains it has seen till now.
The writer does not hold positions in the company discussed here.
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