Look at stock only post listing
PTC Financial Services Limited (PFS) is tapping the capital markets with its IPO to raise between Rs 407 crs and Rs 439 crs. The issue comprises of a fresh issue and an offer for sale. The issue has opened on Wednesday the 16th of March and would close on Friday the 18th of March. Anchor investors have been allotted 30% of the QIB portion at the top end of the price band of Rs 28. There is a discount of Rs 1 for retail investors post allotment of shares.
| Price Band | Rs 26 to Rs 28 per Equity Share |
| Discount to Retail Investors | Rs 1 to Retail Investors post allotment |
| Fresh Issue Size | 12,75,00,000 Equity Shares |
| Offer for sale by existing shareholders | 2,92,00,000 Equity Shares |
| Total Issue Size | 15,67,00,000 Equity Shares |
| Total Issue size in value (Rs) | Rs 407.42 crs at Rs 26 to Rs 438.76 crs at Rs 28 |
| QIBs | 7,83,50,000 Equity Shares |
| Non-Institutional Buyers | 2,35,05,000 Equity Shares |
| Retail Individual Bidders | 5,48,45,000 Equity shares |
| Anchor Investors | 2,35,05,000 Equity Shares alloted at Rs 28 |
| Equity shares outstanding after the Issue | 56,20,83,335 Equity Shares |
| Market Capitalisation post issue | Rs 1,461.41 crs at lower price band to Rs 1,573.83 crs at upper price band |
| Issue opens on | Wednesday 26th March |
| Issue closes on | Friday 18th March |
| Book Running Lead Manager | SBI Capital Markets Limited |
| J M Financial Consultants Private Limited | |
| ICICI Securities Limited | |
| Almondz Global Securities Limited | |
| Co-Book Running Lead Manager | Avendus Capital Private Limited |
| IPO Grading | 4/5 by CARE indicating above Average Fundamentals |
| 4/5 by ICRA indicating Above Average Fundamentals | |
| 3/5 by CRISIL indicating Average Fundamentals | |
| Bid Lot Size | 250 Shares |
| Bidding Amount for Retail | 7,000 shares at Rs 28 or Rs 1,96,000 per application |
Business
PFS as the name suggests is a NBFC (Non banking finance company) registered with the Reserve Bank of India. It has only recently been classified as an Infrastructure Finance Company (IFC) by the Reserve Bank.
The business activities of PFS include Equity and Debt Financing, Fee based Syndication and advisory services and carbon credit financing against certified emission reductions (CER).
The key financial highlights of the company for the nine month period ended December 2010 are as follows: –
| Equity Commitments | Rs 564.4 crs |
| Debt Commitments | Rs 2256.7 crs |
| Total Equity Book | Rs 418.6 crs |
| Total Debt Book | Rs 595.1crs |
PFS provides investment and financing solutions for the entire energy value plan. The parentage of PTC better known as India’s first and leading power Exchange Company helps PFS in entering the value chain at an early stage. The company has various products which it can offer from products like bridge finance, equity, debt of short term and long term nature, fee based services and advisory services. It has very clear set of guidelines for exiting from the equity investments and the company is assured a minimum return on equity. It has a right to force the company to go for an IPO and provide an exit route to the investment made by PFS.
Objects of the Issue
There is no project to be implemented by PFS; hence the net proceeds of the IPO will be used to augment the capital base to meet the future capital requirements arising out of growth in the business.
The company would use the funds based on the requirements of the business. There are restrictions imposed upon the company as a NBFC as to how much can be lent to one company and one group of companies. These limits and restrictions are raised in terms of limits as the company has been classified as an Infrastructure Finance Company by RBI
Financials
The company has turned profitable in the third year of operation. PFS was incorporated as a wholly owned subsidiary of PTC Limited in September 2006 and made a nominal loss at the net level for the year ended March 2009 of Rs 9.7 lacs. In the next year the profit has risen to Rs 672.7 lacs and in the nine months of the current year ended December 2010 the profit is at Rs 2708.4 lacs. Assuming the same is annualised the profit for the year ended March 2011 would be Rs 3602.17 lacs.
| 31st Mar 09 | 31st Mar 10 | 31st Dec 10 | Annualised | |
| 31st March 11 | ||||
| Income from Investments | 1031.20 | 2128.10 | 1414.20 | 1880.89 |
| Income from Interest | 128.80 | 3220.90 | 6840.20 | 9097.47 |
| Total Income | 1160.00 | 5349.00 | 8254.40 | 10978.35 |
| Profit before tax | 868.00 | 3670.00 | 4429.20 | 5890.84 |
| Net Profit | -9.70 | 672.70 | 2708.40 | 3602.17 |
| EPS on fully diluted basis | 0.12 | 0.48 | 0.64 | |
| PE Multiple at lower Rs 26 | 217.25 | 53.96 | 40.57 | |
| PE Multiple at higher Rs 28 | 233.96 | 58.11 | 43.69 | |
| Fully diluted Equity in Shares | 562,083,335 |
Investment Portfolio
The current Equity Investment Portfolio of the company is as follows: –
| East Coast Energy Private Limited | 1320 MW | Under development | Rs 125 crs |
| Ind-Barath Energy (Utkal) Limited | 700 MW | Under development | Rs 105 crs |
| Meenakshi Energy Private Limited | 900 MW | Under Development | Rs 61 crs |
| Ind-Barath Powergencom Limited | 189 MW | Partly commissioned | Rs 56 crs |
| R S Wind Energy India Limited | 99 MW | Partly commissioned | Rs 61 crs |
| Veram Bio Energy Pvt Limited | 10 MW | Fully operational | Rs 4 crs |
The company has invested approximately Rs 412 crs in the equity of companies that would generate roughly 3218 MW of power. Of this capacity 126 MW of the 189 is operational, so is a part of the wind power and the entire bio energy.
The idea of giving these details is to showcase the investments and also highlight that there could always be delays in execution of the best planned projects. It is always said that Equity is a very risky form of investment and therefore the return on equity is always considered at higher levels compared to the rate of interest.
Comparisons
In terms of financing the company could be compared with its government peers like REC or PFC. In the equity business it is doing an activity like a Private Equity Investment company but specialising in the power business. There certainly is no player who is in this combination of activities. The company PFS has chosen to not compare itself with any other player. This makes comparison difficult and the analysis even more difficult and tricky. There is a school of thought who says that such companies should be compared on the basis of NAV (net asset value) and the NAV as on 31st December 2010 is Rs 15.29.
Strategy for growth
The company plans to focus on renewable power and other emerging segments of the power sector. The company would work towards lowering its cost of funds by working with international financial institutions. PFS would endeavour to offer comprehensive structured financing solutions to private sector power developers and become the preferred partner of financer for smaller and medium projects. The company would of course maintain an optimal mix of equity investments and debt financing.
Risks
The biggest risk in the business of setting up power projects is the clearance of the environment ministry. There have been many cases where even after receiving all clearances, they have been recalled and projects have got stuck. The other big risk is the availability of coal. The largest supplier /miner of domestic coal is Coal India and they are unable to meet the requirements of the industry. Imported coal is available but the price and logistics seem to have been badly affected in recent times with floods in Australia and now the tsunami in Japan. The nuclear problem that Japan is facing has added to the short term pressure on coal demand and the only way that coal prices would move is upwards. In such a scenario in the short and medium term extra pressure would be there on new power projects under development.
Conclusion
The company PFS could be classified as a finance company with a focus on the power sector. The power sector has huge demand and growth potentials about which there is no doubt. The company also invests in equity of companies in the power sector. The current equity portfolio leaves little possibility of upside in the immediate term or over the next year or so. The income and profits of the company would therefore come from the financing business which would leave little or no scope for price appreciation to the valuations being asked.
I believe it makes good sense for retail investors to stay away from the issue at the time of its IPO and look at the same post listing. There are very strong possibilities that the share would be available cheaper than the current asking price. I therefore suggest that with the issue looking expensive and there being other financial institutions fitting the bill better it makes sense to stay away from the issue currently. It would be available cheaper after listing and the upside from its equity investments is quite some time away.
In conclusion I would advise retail investors to stay away from the issue.
SEBI Disclaimer: – I do not intend to subscribe to the above issue
