| PTC India Financial Services Limited | ||||||
| Short-term rating downgraded to 'CRISIL A1'; Ratings removed from 'Watch Developing' | ||||||
| Rating Action | ||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has removed its ratings on the debt instruments and bank facilities of PTC India Financial Services Limited (PFS) from ‘Rating Watch with Developing Implications’ and assigned a ‘Negative’ outlook while reaffirming the long-term rating and debt instrument at ‘CRISIL A+’. The rating on commercial paper programme and short term bank facility has been downgraded to ‘CRISIL A1’ from ‘CRISIL A1+’.
On January 31, 2022, CRISIL Ratings had placed the ratings on the debt instruments of PFS on ‘Watch with Developing Implications’ following the resignation of three independent directors of the company citing corporate governance lapses. Further, CRISIL Ratings had taken note of similar developments in December 2022 with the resignation of another set of three independent directors (appointed by parent PTC India Limited on interim basis), with two of them also highlighting corporate governance lapses at the company. PFS, in turn, had refuted these allegations.
Three new independent directors were appointed on November 15, 2022. With this, the Board had quorum in place to function as per requirement.
CRISIL Ratings has continued to monitor the impact of these developments, with particular focus on the company’s incremental fund raising and thereby on their ability to normalise their business operations.
CRISIL Ratings has now resolved the rating watch. The PFS Board has been able to function for two consecutive quarters (December 2022 and March 2023). Financial results for the year ending March 31, 2023 have also been declared.
The negative outlook on the long-term rating and downgrade in rating on the commercial paper programme reflect the delay in incremental fund raising which has adversely impacted business operations, and in turn, the market position of the company. Disbursements stood at Rs 583 crore in Q4FY23 as against sanctions of Rs 1,563 crore in the same period. The disbursements for fiscal 2023 stood at Rs 2,253 crore as against Rs 3,888 crore in previous fiscal. Consequently, the gross loan book has registered a de-growth of 15.6% in fiscal 2023 and stood at Rs 7,339 crore (Rs 8,686 crore). Further, disbursements have been funded mainly through repayments and prepayments with incremental fund raising being limited to Rs 300 crore since January 2022.
The GNPA increased on sequential basis to 9.7% as on March 31, 2023 (8.3% as on March 31, 2022) as compared to 7.9% as on December 31, 2022 owing primarily to a slippage of Rs 135 crore in Q4FY23. In absolute terms, GNPA remained at similar level of Rs 716 crore as on March 31, 2023 as compared to Rs 724 crore as on March 31, 2022.
CRISIL Ratings will continue to monitor the impact of the ongoing developments on the company’s incremental fund raising. Also, the stance taken by the regulators on the company with regard to penal actions, if any, will be a key rating monitorable.
The ratings continue to factor in strong support from the 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 relating 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 the ratings, CRISIL Ratings has analysed the business and financial risk profile of the company. The ratings also factor in the company's strategic importance to, and strong support likely to be provided by, the promoter, PTC. |
Key Rating Drivers & Detailed Description Strengths: Expectation of strong support from parent PFS, promoted by PTC, remains strategically important to the parent, 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 March 31, 2023. 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. PTC's chairman and managing director is PFS's non-executive chairman. Additionally, the company now has two common directors. CRISIL Ratings believes that the parent will support PFS in meeting its debt obligations in a timely manner, in the event of a distress situation. PTC, will also have a strong moral obligation to support the subsidiary given the strong relationships and shared brand name between the two.
Adequate capitalisation Capital structure is marked by healthy networth of Rs 2,443 crore as on March 31, 2023. Tier 1 capital adequacy ratio (CAR) was at 32.41%, with overall CAR at 33.05% as on March 31, 2023, compared to 26.10% and 26.71%, respectively, as on March 31, 2022. Gearing stood at 2.2 times as on March 31, 2023 (3.1 times as on March 31, 2022), and is expected to remain under 6.0 times on a steady-state basis. The company’s capital position also supports asset-side risks. Networth coverage for net non-performing assets (NPAs) was adequate at 8 times as on March 31, 2023 (5.9 times as on March 31, 2022). 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 in the near to medium term.
Weaknesses: Asset quality risks arising from challenges faced by the power sector PFS faces asset quality challenges, given its concentration in the power sector, weak financial health of state power distribution companies and exposure to private sector thermal power projects. To mitigate the risks, the company pruned its exposure to the thermal segment (which now stands at about 6%), and consequently expanded its renewable energy portfolio, which now accounts for around 29% of the total loan book as on March 31, 2023. However, given the nature of business, around 28% of loans are still under moratorium and the impact of seasoning will be visible only over the medium term. Gross Stage 3 assets stood at 13.59% as on March 31, 2023. Gross NPAs (GNPA) stood at 9.68% as on same date as against 8.29% as on March 31, 2022. In absolute terms, GNPA remained at similar level of Rs 716 crore as on March 31, 2023 as compared to Rs 724 crore as on March 31, 2022.
Nevertheless, the relatively high provision coverage at 57% as on March 31, 2023 (47% as on March 31, 2022) has resulted in net NPA declining to 4.38% as on March 31,2023 from 4.67% as on March 31, 2022. Credit costs declined to 0.9% (of average assets; annualised) for fiscal 2023 as against 1.6% for fiscal 2022. Consequently, Profit after tax (PAT) was Rs 176 crore with return on average assets (RoA) of 2.1% for fiscal 2023 against Rs 130 crore and 1.2%, respectively, for fiscal 2022.
While PFS has resolution plans in place for large NPAs, and there has been some progress, timelines and ability to effect significant recoveries needs to be monitored. Thus, the impact of asset quality and recoveries on its profitability will remain a key monitorable.
Moderate market share in the infrastructure financing segment with delay in fund raising limiting growth opportunities PFS has a moderate market share in the infrastructure financing segment, with a gross loan book of 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 loan book was on account of the company not being able to sanction new proposals without a fully functioning board during Q4FY22 and Q1FY23. The company has sanctioned and disbursed loans amounting to Rs 3,854 crore and Rs 2,253 crore, respectively, in fiscal 2023 (Rs 4,150 crore and Rs 3,888 crore, respectively, in corresponding period of previous fiscal). Of these, Rs 2,694 crore and Rs 1,192 crore were the sanctions and disbursals respectively in the second half of fiscal 2023. Furthermore, 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. The company’s ability to secure these borrowings in the near term in order to normalise operations and disbursements will need to be monitored. |
Liquidity: Adequate The analysis of the asset liability maturity profile of PFS, as of March 31, 2023, shows nil negative cumulative mismatches in the one-year bucket, without adjusting available unutilised bank lines. As on May 25,2023, cash balance (of Rs 9.5 crore), fixed deposits investments (of Rs 402.5 crore) and unutilised bank-lines (of Rs 115 crore) should suffice to cover the maturing debt of Rs 374 crore for the next three months. |
Outlook: Negative CRISIL Ratings believes any further delay in incremental fund raising will continue to adversely impact business operations, and in turn, the market position of the company. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company PFS was promoted by PTC, to provide financial services and related products and services to companies in the energy value chain. The company was incorporated in September 2006 and commenced operations in May 2007. PFS is registered with the RBI 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 March 31, 2023, the gross loan book was Rs 7,339 crore comprising 28% to renewables, 6% to thermal and hydro assets and the rest being others (including, transmission, sustainable infrastructure, road projects and state power utility)
For fiscal 2023, PAT was Rs 176 crore on total income (net of interest expense) of Rs 365 crore, as against Rs 130 crore and Rs 389 crore, respectively, for the previous fiscal. |
Key Financial Indicators
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
^Yet to be raised *Interchangeable with short-term bank facility |
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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