Detailed Rationale

CRISIL Ratings has reaffirmed its 'CRISIL A/Negative/CRISIL A1' ratings on the bank facilities and debt instruments of PTC India Financial Services Ltd (PFS).

 

The ‘Negative’ outlook on the long-term rating continues to factor in the prolonged delay in augmenting debt funding, and its resultant impact on the company’s growth and overall business performance. Challenges in raising funds continue to be primarily attributable to corporate governance concerns raised earlier by independent directors followed by some senior management resignations and the auditor’s qualified opinion on the March 2024 financial results. The company did not make substantial disbursements during fiscal 2024 due to lack of fresh funding. While disbursements were healthier at Rs.566 crores in the first quarter of fiscal 2025, these continue to be funded mainly by prepayments and repayments of the existing book.

 

Additionally, fiscal 2024 saw the resignation of a few senior management personnel. The Chief Compliance Officer (CCO) who was appointed in October 2023 resigned in November 2023 due to personal reasons. Pursuant to SEBI order, non-executive Chairman ceased to be from his position with effect from 12th June 2024.  Further, Executive Director (Credit) who was appointed in March 2023 resigned in June 2024. The CFO and Director (Finance) also tendered his resignation in June 2024.

 

In a bid to address concerns, the company has taken several steps. In June 2024, the company appointed a full-time MD & CEO Shri R. Balaji who comes with an experience of over 27 years across various sectors. Further, the company has given interim charge to Abhinav Goyal and Rohit Gupta as CFO and CCO respectively till the regular CFO and CCO joins.

 

Additionally, the company has continued its engagement with existing and new lenders to address any concerns and resume resource mobilization.

 

Incremental fund raising has been limited to Rs 100 crore of fresh sanctions since April 2023. Overall disbursements for fiscal 2024 stood at Rs 586 crore against sanctions of Rs 525 crore (Rs 2,253 crore and Rs 3,854 crore, respectively, for fiscal 2023). Consequently, gross loan book declined by 26.5% in fiscal 2024 and stood at Rs 5,396 crore (Rs 7,339 crore as on March 31, 2023). However, the business operations revived in Q1FY25. For the first quarter of fiscal 2025 the company sanctioned and disbursed loans amounting to Rs 500 crore and Rs 566 crore respectively. Resultantly, gross loan book increased to Rs 5,577 crore in Q1FY25.  Further, the company has a strong pipeline for fresh sanctions of Rs ~2,000 crore in the next three quarters of the current fiscal. Hence, the size of loan book is expected to increase gradually going forward.

 

CRISIL Ratings also noted the resignation of statutory auditor of PFS ‘Lodha & Co LLP’ on 13th August 2024. However, the reasons stated by the statutory auditor for their resignation pertain to issues already present in public domain and are factored in the overall rating assessment of the company. Further, the statutory auditors confirmed in their resignation letter that they have not faced any data related issues with the company such as lack of information or inability to provide required information.

 

CRISIL Ratings will continue to monitor the business performance, with particular focus on the company’s incremental fund raising and, thereby, its ability to normalise operations. Additionally, the stance taken by the regulators on PFS will continue to remain a key rating monitorable

 

The ratings reflect the expectation of strong support from its promoter, PTC India Ltd (PTC; rated 'CRISIL A1+'), and the company’s adequate capitalisation and earnings profile. These strengths are partially offset by exposure to risks related to asset quality given the challenges faced by the power sector, and modest market share in the infrastructure financing segment

Analytical Approach

For arriving at its ratings, CRISIL Ratings has analysed the business and financial risk profiles of PFS on a standalone basis. The ratings also factor in the company's strategic importance to, and expectation of strong support from promoter, PTC.

Key Rating Drivers & Detailed Description

Strengths:

• Expectation of strong support from the parent: PFS remains strategically important to PTC, given the latter's objective of operating as an integrated player in the power sector. PFS offers financing solutions to entities in the power sector and complements PTC’s role by offering power-trading solutions. PTC has invested Rs 754.77 crore in PFS till date and holds a 64.99% stake in the company as on June 30, 2024. The parent continues to extend branding, strategic, management and funding support to the company. PFS benefits from the parent's strong domain knowledge and healthy customer relationships. Additionally, PTC board has recommended the appointment of Whole time Director of PTC as Nominee Director of PTC and the Non- Executive Chairman on the Board of PFS. The recommendation has been submitted to RBI for its approval as per extant RBI guidelines. He will be appointed to the Board of PFS on receipt of approval from RBI. Further, the company has one common director with PTC. The parent will support PFS in meeting its debt obligation in a timely manner, in the event of a distress situation. PTC will also have a moral obligation to support the subsidiary given the strong relationships and shared brand between the two.

 

• Adequate capitalization: Capital structure is supported by a comfortable networth of Rs 2,583 crore as on June 30, 2024 (Rs 2,539 crore as on March 31, 2024). Tier-1 capital adequacy ratio (CAR) was 39.9%, with overall CAR at 41.4% as on June 30, 2024, compared with 41.5% and 43.1%, respectively, as on March 31, 2024. Gearing stood at 1.4 times as on June 30, 2024 (1.5 times as on March 31, 2024) and is expected to remain under 6.0 times on a steady-state basis. Capital position also supports asset-side risks. Networth coverage for net non-performing assets (NPAs) was adequate at 18.5 times as on June 30, 2024 (17.9 times as on March 31, 2024). While the current capitalisation will support near-term growth plans, the ability to raise additional capital to fund large growth plans will remain a key rating monitorable over the medium term.

 

Weaknesses:

• Delay in raising funds limiting growth opportunities: PFS has a moderate market share in the infrastructure financing segment, with a gross loan book of Rs. 5,396 crore as on March 31, 2024 (Rs 7,339 crore as on March 31, 2023, Rs 8,686 crore as on March 31, 2022, and Rs 11,094 crore as on March 31, 2021). The decline in the loan book was on account of the company’s inability to sanction new proposals due to non-availability of a fully functioning board during the fourth quarter of fiscal 2022 and the first half of fiscal 2023. The other reason being the inability to raise fresh funding.

 

In fiscal 2024, the company’s disbursement reduced to Rs 586 crore as compared to Rs 2,253 crore in fiscal 2023 (Rs 3,888 crore in fiscal 2022). Similarly, fresh sanctions in fiscal 2024 also reduced to Rs 525 crore as compared to Rs 3,854 crore in fiscal 2023. (Rs 4,150 crore in fiscal 2022). One of the key reasons for the decline in disbursements was the non-availability of regular MD & CEO which delayed the decision making on fresh sanctions. This along with the overhang of historic corporate governance issues slowed the traction in fund raising as well as the company raised incremental borrowing of only Rs 100 crore in fiscal 2024. Nevertheless, repayments and prepayments ensured the company had adequate liquidity at all times. 

 

However, the business operations saw modest revival in the first quarter of fiscal 2025 and was accentuated post the appointment of regular MD & CEO in July 2024. For the quarter ended June 30, 2024, the company sanctioned and disbursed loans amounting to Rs 500 crore and Rs 586 crore respectively. Additionally, the company has a strong pipeline for fresh sanctions of Rs ~2,000 in the next three quarters of the current fiscal. While the company has been evaluating new loan proposals, discussions on fresh funding have been underway for a while with multiple lenders, which are yet to fructify into formal sanction of limits. Ability to secure these borrowings in the near term to normalise operations and disbursements will need to be a key rating monitorable.

 

• Exposure to asset quality risks arising from challenges faced by the power sector: PFS’ asset quality remains vulnerable to its concentration in the power sector, and weak financial health of state power distribution companies. To mitigate these risks, the company pruned its exposure to the thermal segment (which now stands at about 6%) and is consequently focusing on expanding its renewable energy and transmission portfolio, which accounts for around 20% and 19% respectively of the total loan book as on June 30, 2024. The asset quality metrics improved as Gross Stage 3 assets reduced to Rs 767 crore as on June 30, 2024 (Rs 769 crore as on March 31, 2024) compared to Rs 1,005 crore as on March 31, 2023. Gross NPAs (GNPAs) also reduced to Rs 486 crore as on June 30, 2024 (Rs 489 crore as on March 31, 2024) from Rs 716 crore as on March 31, 2023. In ratio terms, the improvement is not significant due to de-growth in the overall loan book. GNPA stood at 8.7% as on June 30, 2024 (9.1% as on March 31, 2024), compared with 9.8% as on March 31, 2023. With a provisioning coverage ratio of 71%, net NPAs stood at 2.8% as on June 30, 2024 (3.0% as on March 31,2024), improved from 4.5% as on March 31, 2023.

 

With respect to profitability, net interest margin improved to 4.8% for fiscal 2024 from 3.9% in fiscal 2023 mainly driven by lower funding costs due to negligible incremental borrowings. However, it is offset by marginal inch up in credit costs as it increased to 1.2% (of average assets) for fiscal 2024 from 0.9% for fiscal 2023. Consequently, profit after tax (PAT) was Rs 161 crore with return on average assets (RoA) of 2.3% for fiscal 2024, against Rs 176 crore and 2.1%, respectively, for fiscal 2023. Profitability on absolute basis was impacted due to decline in interest income on account of degrowth in the loan book. For the quarter ended June 30, 2024, the company reported PAT of Rs 44 crore with an annualised ROA of 2.8%.

 

While PFS has resolution plans in place for large NPAs, and there has been some progress, timelines and ability to effect significant recoveries will continue to be monitored. Thus, the impact of asset quality and recoveries on profitability will remain a monitorable.

Liquidity: Adequate

The analysis of the asset liability maturity profile of PFS as of June 30, 2024 shows positive cumulative mismatches across all the buckets. As on July 31, 2024, the company has cash and cash equivalent (including unutilised bank lines and fixed deposit) of Rs 1,087 crore sufficient to cover debt obligation for the next six months.

Outlook: Negative

Any further delay in incremental fund raising will continue to impact business operations and, in turn, market position.

Rating sensitivity factors

Upward factors

• Traction in fund raising at optimal pricing enabling resumption of normal business operations
• Material improvement in the credit risk profile of PTC
• Significant improvement in the asset quality and competitive position of PFS amid comfortable financial risk profile (RoA crosses 2.5% on a sustainable basis)

 

Downward factors

• Continued pressure on incremental fund raising and consequent impact on business operations
• Any adverse impact of the stand taken by regulators 
• Decline in support from PTC, either by way of decline in its ownership below 50% or in the strategic importance of PFS to PTC
• Significant and consistent increase in delinquencies impacting profitability

About the Company

PFS was incorporated in September 2006 and commenced operations in May 2007. It is promoted by PTC to provide financial services and related products to companies in the energy value chain. PFS is registered with the Reserve Bank of India as an infrastructure-financing non-banking financial company. It provides loans (including mezzanine funding) to infrastructure projects, with primary focus on renewable projects; along with other projects of distribution, transmission, road under hybrid annuity model, sewage treatment and ports. The company also provides non-fund-based products and services to companies in the power sector. As on June 30, 2024, gross loan book was Rs 5,577 crore, comprising 20.0% towards renewables, 6% to thermal and hydro assets and the rest being others (including, transmission, sustainable infrastructure, road projects and state power utility).

 

For fiscal 2024, PAT stood at Rs 161 crore on total income (net of interest expense) of Rs 366 crore, against Rs 176 crore and Rs 365 crore, respectively, for fiscal 2023.

 

For the quarter ended June 30, 2024, PAT stood at Rs 44 crore on total income (net of interest expense) of Rs 73 crore, against Rs 37 crore and Rs 85 crore, respectively, for the corresponding period of previous fiscal.

Any other information: Not Applicable