PTC India Financial Services Ltd

Ladies and gentlemen, good day and welcome to the PTC India Financial Services Q1 FY '25 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Priya Chaudhary. Thank you, and over to you, ma'am.

Good afternoon, everyone. I'm Priya Chaudhary. I'm part of the Investor Relations team at PTC India Financial. Welcome to the investor call for a discussion on Q1 financial year '25 results of PTC India Financial. There are a lot of positives that we will be discussing during the course of this call, but let me start with the first. It gives us immense pleasure to welcome our CEO and MD, Mr. R. Balaji to this call. He is joined by Mr. K. Srinivas, Executive Director; Mr. Sitesh Sinha, Executive Vice President and Mr. Abhinav Goyal, Vice President. Over to you, sir.

Good afternoon all. This is Balaji. First of all, I would like to thank you all for joining on our quarterly call. Compared to what we have been witnessing over the past couple of years we are getting back on to the growth path and our Q1 is significantly better than what it was compared to the preceding year. So, the way we would like to take it forward is as follows. Abhinav Goyal who is the Head of Finance, he would take you through our presentation and subsequently I and the rest of the team are here to answer all your queries. Over to you, Abhinav.

Yes. Thank you very much. I'm Abhinav this side. So, this quarter is a quarter of a start for us, a lot of starts has already been done. First part is much awaited question of our investors when a regular MD will join and now, we are having answer. So Mr. Balaji is with us, and second question which we frequently used to have from investors is when the business will start. This quarter we are having a ₹566 crores of disbursement. As a result, there is an increment in our portfolio from where we were standing at the end of the last quarter. Our portfolio is been increased to ₹ 5,577 crores.

In terms of our profitability our total income has been ₹161 crores. There is a marginal decline in comparison to previous quarter. The major reason is that there was a re-payment of around ₹ 1,400 crores in last year. This repayment has been reduced now to slightly more than ₹200 crores in this quarter. As a result of this and with the additional disbursement there is an increase in our portfolio. Now our profit before tax stood at ₹ 59 crores for this quarter in comparison to ₹ 19 crores last quarter. The major contributor for increase in profitability is ECL provision. whereas we were having significant ECL provisioning last quarter which has been reduced to a reasonable extent this quarter, just slightly lower than ₹5 crores. Our NIM for the quarter stood at ₹ 71 crores. Return on asset is stood at 2.77%. Our debt to equity has been improved from 1.54x to 1.4x. So, though there is an improvement in our debt-to-equity, but we are expecting in time to come there will be upward with the additional disbursement, there will be improvement in terms of more portfolio with quality. And we believe that is what our investor is looking for.

Now in terms of total income we are having a total income of ₹ 161 crores. PBT already stood at ₹ 59 crores. Tax expenses are around ₹ 15 crores and then earnings per share is ₹ 0.69. So, this is the brief of financial performance of the company. I now request our MD to take it forward.

Thanks. Abhinav for sharing the financials. The way I would like to continue is two-fold. First, I will just give a brief overview in what the quarter was and what we intend to do in the remainder of the year. That will be the first part. Subsequently, we'll open the lines for any queries on your behalf. Like what Abhinav said in Q1 we disbursed ₹566 crores. To provide a perspective our disbursement in the first quarter of this year was almost similar to what the company had disbursed in last financial year. Because of which the downward trend in our AUM has been arrested and we will witness a small increment of around ₹170 - ₹180 crores in our AUM.

Secondly, there was no fresh slippage as far as NPA was concerned because of which of our gross Stage 3 declined by ₹2-odd crores. And as far as NPA is concerned more or less constant and our net NPA is also came down by around ₹ 2-odd crores per se. We have been able to maintain our yields on our portfolios.

There has been an increase in the cost of funds primarily due to a downward revision of our credit rating, which happened on June 14, but we expect that over the next few months in lieu of the corrective actions taken by the company and more importantly a full-fledged robust management team in place we expect the reversal to happen in the next few quarters.

The couple of highlights of the quarter 1 was as far as disbursement was concerned. But secondly, more importantly we have achieved significant progress and closure in terms of most of the issues that was plaguing the company in the previous year. Now going forward, what we intend to do, first, stabilize the operations of the company. The way I will put it, most of you will be aware of some of the many issues that have been plaguing the company. We have put in place structural mechanisms to ensure that these issues do not recur. Second thing we'll be focusing on improving the employee engagement because one of the critical things for us as an organization is the quality of the people.

We have a highly competent set of managers. What we intend to do is to enhance the engagement so that we'll be able to go full-fledged out into the market to garner business. As far as business is concerned, I would like to take it on two sides; one is on the asset side and subsequently on the liability side.

As far as asset is concerned, we will be focusing on de-risking the portfolio. This de-risking the portfolio would happen along two dimensions. As we intend to move towards being a full- fledged infrastructure player, so, moving into various parts of the infrastructure value chain, and more importantly, across any particular value chain; whether you take energy value chain, we intend to operate across all parts from generation, transmission and distribution. That is the one thing which we intend to do.

Second thing we intend to do is to ensure that our portfolio quality and stability, is not adversely impacted by any slippages that could happen in the future. So, we'll be focusing on more of

smaller ticket projects which ensures that even the decision-making process is speeded up, and more importantly, each of these projects at an individual level would not have a significant impact on the portfolio.

While we do this, we would also focus on diversifying the fund mix. At this point of time, nearly 97% of it comes from the banks. So, one thing is to deepen our engagement with the banks so that we get more line from a more number of banks. And more importantly, also get into other sources of funds, like look at mutual funds, it's a very significant area, which we intend to focus on.

And the other thing which we are pursuing on which the organization has been focusing on the last couple of years, is to enhanced thrust on achieving closure on stressed assets. You will be hearing news about these in the next couple of quarters. We expect significant resolution in our stressed asset portfolios. Through all this, what we intend to achieve is to reduce our gross NPA and Stage 3 assets, both at an aggregate gross level as well as at a net level.

And towards this, we will also be having a re-look at our portfolio. While currently, we believe that we are adequately provided for, we do stress testing to see that anything else which we need to do to ensure that the overall portfolio stability is maintained. This is what we intend to do.

And we are also planning a lot of initiatives. But as and when, we will see progression in the next 3 to 4 months, and as and when we finalize the same, we'll be sharing it with you.

Abhinav, would you like to say anything or we can open for questions.

We may open for question and answer session.

Thank you very much. We will now begin with the question answer session. The first question is from the line of Monica Arora from Share Gain Wealth Advisor. Please go ahead I would like to ask that how do you see the sector mix transforming in the next couple of years, especially in FY '25. And also, if you can share a broader outlook, like according to you, how will the sector perform and your thoughts on the same? So just that idea.

Yes. Thanks. Could you please clarify what exactly you mean by the sector mix transforming?

So how would be the mix between the sectors basically? At an industry level or at PFS level. I want to understand at both.

Okay. Let me start. Second part is easy. We do not want to give any significant forward-looking statements, but I can go as far as the past is concerned. In the past, one of sector we have heavily overweight on is thermal. Now if you look at how it has been happening, one, from the energy sector, we have shifted more into renewables and thermal accounts for only for 6% of overall.

But the larger question at this stage is the shift between energy and non-energy.

We believe there is sufficient play for us to operate not just in energy but also in other forms of infrastructure like roads, wastewater plants, sewage treatment plants and other forms of infrastructure, that's where we intend to be.

And if you look at the overall industry prognosis, the government has been investing heavily in infrastructure over the past few years. Even in this year's budget ₹11.11 lakh crores, is the amount that government is intending to spend on infrastructure.

In addition, if you consider the investments by the various private sector entities where the private sector entities is not very large in comparison to the government, we are looking at around ₹12-13 lakh crores investment in this.

The way we are looking at it, each of these pieces have got an immense potential. While government primarily is in the area of roads, highways and other infrastructure sectors; but if you take renewable as a play, the potential only in renewables across the country over the next 10 years, will be close to ₹15 lakh crores. That is the investment that would be required.

While some of it or most of it would be mega projects per se, but there is play across the entire spectrum in terms of projects ranging from 5-10 MWs to as large as 5 GWs to 5-10 GWs. So, there is play across the entire energy spectrum. Similarly, if you take other parts of the energy value chain, for example, like transmission, while the thrust has been on interstate transmission power lines, now going forward, there will be requirements for intrastate or feeder lines. So the two critical takeaways from this is; 1. projects are available across the spectrum from small to large, that is one. 2. investments are being made not only at the generation level but across both distribution and transmission level. So, this is what we are seeing.

And if you look at the other aspects also whether you take a look at other forms of energy; & this year's budget spoke a lot about compressed biogas, and that's essentially converting an adversity in opportunity. As it is, this is organically generated both at the city level and the biomass level in the rural area. This, in fact, contributes to global warming because many of these lead to emission of methane. So, through this we are converting and generating valuable energy out of it. This is something we envisage going forward. Third thing, after a lot of this, the thrust on clean cities infrastructure. This means that waste management would be of a priority area, both for the solid waste as well as waste water. Waste water, in fact, would be a significant opportunity because India is one of the most water-stress countries in the globe. So therefore, reusing, recycling water would be a big opportunity that would make immense sense going forward.

These are the areas which we want to see. And just to put in a single phrase, we will ensure that our organization's growth areas is aligned with the thrust areas driven by the government in terms of participating across the various infrastructure value chain.

The next question is from the line of Mangesh Kulkarni from Almondz Global Securities.

Congratulations, Mr. Balaji for taking over as a new MD of the company. You have taken over as MD at a very challenging time when the company is trying to come back on a very with a lot of cleaning, cleaning needs to happen and executives need to be appointed. So, looking at this, what made you to take this assignment. And going ahead, what are your strategies as far as building up the existing team is concerned. And then bringing back the investor confidence to the company?

Thanks. Actually, it's not as challenging time as what you have made it out to be. They say that darkest hour is before dawn. Actually, most of the heavy lifting is already been done by my colleagues who have been in the organization for the past couple of years. We were a prisoner of circumstances, which was much beyond the control of most of the organization. Now with the organization completely on-board, we'll be going back to the growth path.

And the way we are seeing it is, we have missed out 5 to 6 years. It's like a bad dream and we'll be getting forward to it. At least there’s no magic ingredient or sauce. We are in financial services. The only assets the company has are its people. So, every day, when the people go back home, the assets of the company comes to zero. Basically, the hard assets, furniture, etc, don't matter much. So, the primary thing is to unleash the energy of the people. As if we actually look at what's happened in the past, we've been a power financier, and even if you look at a 10- 15- year track record of this organization, the quality of the projects that have been appraised and lent, is significantly better compared to the industry average. Therefore, we intend to go back to it. Our book has essentially de-grown not because of portfolio quality issues, it had de-grown because we had stopped fresh lending. Once we get back on to the lending, we'll be able to do it.

So, the two critical things is: 1. unleashing the energy of the people. 2. more importantly, wining the trust and credibility with the various other stakeholders, that is the regulators as well rating agencies as well as the larger financial institutions would be the providers of funds for this organization.

Right. Sir, in terms of asset quality. Like you've made a statement that these are in very advanced stage of resolution. So, what kind of recovery we are expecting in the current financial year as well as our sanction and disbursement targets for FY '25? That's what I wanted to know.

We would not want to give any such advance figures at this point of time. Okay. And on the recovery front? That’s an advance figure, right? Okay. No problem, sir.

We can tell you, currently, if you take a look at our net NPA, it declined by ₹2 crores. Compared to March it's come down to ₹140 crores. Our endeavour is that as our balance sheet keeps on growing, as our loan book keeps on growing, this figure does not increase much, so that as a

proportion, it will always keep on reducing. Currently, it's around 3-odd percent of our net NPAs to assets and there will be significant reduction.

Now the reason why we cannot give a figure for resolution of stressed assets is as these are not retail assets where the process is very well defined and there are lots of cases so therefore some might proceed faster, some might proceed bit easier to give an average number.

Here the number of stressed asset cases itself is low in number. And while we do whatever effort we take, there are circumstances, which are beyond our control and therefore it's not possible.

We know whether it's feasible or not- that we are aware, but whether it would fructify in 3 months or 6 months or 9 months, it is not possible for us to give an authentic figure on that.

Okay, sir. And what is our current outstanding sanction book.

Good afternoon. This is Sitesh Sinha. So, our loan book is ₹5,600 crores.

Right. So sanction this quarter, ₹525 crores, new sanctions were there. So total outstanding sanction book?

Outstanding, we have another ₹300 to ₹400 crores to be disbursed. So that is the additional amount we have sanctioned. We are creating new pipeline. All the best, Mr. Balaji.

The next question is from the line of Kashmira Patel, who is an individual investor.

What would the NIM guidance for FY'25 look like?

See, look, currently if you actually look at NIM, there will be a decline in NIM guidance., It's very simple, because currently, our debt equity is low. As we start growing faster, our debt to equity would increase, therefore, the NIM would come down. So our thrust would be on focusing on projects which are better in quality, although the yields could be relatively lower. So that's what we intend to do.

The next question is from the line of Manoj Pandey who is an individual investor.

I welcome Balaji as new MD & CEO. And I would like to mention that in the last 5 years, while other finance companies, were growing at the rate of 20% to 30%, this company had been declining their loan book by 20% to 30%. Now, I know that you are here since last only 20 days.

You must have worked out some strategy and we as an investor we would like that the opportunities which we have lost is recouped very shortly. So what is your strategy, sir? Can you please explain us?

The strategy is still being worked out because it's easy to do things and tougher to undo them.

But essentially if we want to look into it, we would like to divide it into three parts. The first part is to ensure that most of the issues that have been affecting or plaguing the company in the past few years do not recur. These are primarily procedural, or related to some sort of

governance. We've got notices from SEBI and few other regulators, etc. Putting together processes and structures in place so that they do not repeat in the future.

Now secondly, linked to it is, because of what has happened in the past, we saw, for example, there have been issues with other regulators. We have lost the trust of financial regulator that is RBI. We have also lost trust of the rating agencies that we have been downgraded compared to the earlier ratings. Therefore, the second set of action would be taken through our story, what we intend to do, build reassurance amongst them, so that we have convinced that we are a great company.

Now paradoxically, if you look into it, despite the troubles what the company has had, our capital adequacy has in fact increased. Our capital adequacy is well in excess of 40%. So therefore, from a point of your capital strength, our ability to service existing borrowings, it's very, very high. Two, whatever issues that the company has faced, it has got nothing to do with its financial results. Our portfolio is very clean compared to the overall industry averages. So therefore,– there are no; if one could say any hidden skeletons as far as the financial statements are concerned. So, we are entirely confident that if the governance aspect is resolved in the next couple of months, and subsequently, we build trust with the regulators.

Third, getting on-board the team's commitment, getting them aligned to a common objective.

We'll be working out a plan and in the next few months when we're ready once the Board approves it. We'll also be able to share it with external world. Once we start implementing it, that's the thing we will have to see.

One of the things at least we can relatively say we intend to focus on is growth quarter-on- quarter. The growth might be high or might be low depending on, as you know, on the nature of business which we are in. The lending is always bulky. We are not a retail organization. But the de-growth, which has been witnessed on a quarter-on-quarter basis for the preceding 2, 3 years; that has stopped. The first quarter was a beginning point. But going forward, that's what we intend to do.

Thank you, sir. I think you have got a clean plate right now. Because the book size has been changed, the management has been changed. And now one is the growth phase has come, which in your leadership, I think, we would have good days ahead. Thank you so much.

The next question is from the line of Akash Verma, who is an Individual Investor.

So here is my question that we see a good improvement in provision and contingencies on Q-o- Q basis. So can you please throw some light on this sizable change? And what would our guidance be for whole year FY'25?

Thank you, Akshay. Thanks for participating. I'm Abhinav this side. So, as you may be knowing that we are following an ECL methodology, Expected Credit Loss methodology. So, whatever the provision is to be provided, we are providing it upfront in our financials. Last quarter, we observed that in one of the account, some provisions, additional provision, I should say, has to be provided, which we have provided. But now this quarter, we impact our portfolio and observe that nothing more has been provided. And in line with the policy which we are following

consistently over a period of time, whatever the additional required which was ₹4.77 crores has been provided, right? So that is a consistency with policy which we are following.

Now in terms of the guidance for financial year 2025, as MD Sir has said that it's too early to come out. We are introspecting ourselves. And probably in time to come, we will come out with a clear guidance.

Yes, yes. Got it. Also one more thing that what is the comfortable level of debt to equity according to you for FY '25.

So debt to equity as you know ,we are already more than comfortable at 1.4x and as far Reserve Bank of India, we've been allowed in multiples of 1.4x. So that is a cushion being available to us for doing additional business, and that is the comfort being available to our esteemed investors.

Thank you. The next question is from the line of Kashmira Patel, who is an individual investor. Please go ahead.

Thanks for the opportunity to present my question once more. And I wanted to have like a brief on guidance for disbursement as well as return on asset as well as equity for FY '25.

We said earlier we don't want to give any guidance, right.

Thank you. The next question is from the line of Manoj Pandey, who is an individual investor. Please go ahead.

Hello. Sir, I have one more question. I wanted to know, there are 6, 7 NPA accounts, out of which, which accounts are on the verge of resolution in this quarter, I mean Quarter 2.

See, that is internal information. We are actually pursuing all options in terms of pursuing legally, forcing through the insolvency process, pursuing an OTS with almost all of them. As you know, the time lines in the country get elongated. It is very, very tough to see what will get resolved by Quarter 2, is what we can say at this point.

In previous quarter management also gave information on which of the accounts are on the verge of resolution.

Look, you have got two options. The old management used to give the guidance and have a decline in the book, whereas we have started having a growth in the book, what do you want?

You want to get the guidance and want the book to... No no not Sir,...

See, the reason is until something definite happens, as there are lots of impediments. The legal process within the country is not very streamlined and we may think the issues are resolved and it would happen.

So, what we have done in that is to ensure that our financials are not impacted, we have ensured that we have provided an impairment reserves –if you look at the balance sheet of FY '24 also, as far as this, around ₹115 - ₹120 crores have been provided for it. That will take care of it.

What we can say, going forward, we expect in the next 9 odd months, at least around 20% to 30% of our stressed assets to be resolved by March '25. We can’t tell you whether it happens in Quarter 2 or Quarter 3 or Quarter 4; that's not possible at this point of time.

Thank you. The next question is from the line of Debashish from Svan Investments. Please go ahead.

So, two questions. Number one is on the debt to asset side. I'm very sure that you are also aware, most of the finance companies operating at 3x to 4x of leverage. So just trying to understand what is the leverage target that we have in our mind? That is one.

And second question is, if you look at the way you explained your target markets, on the one side, there is a huge amount of growth opportunity that is completely agreed. But on the other side, I got a little confused when you said that you will only focus on small ticket size businesses.

So just trying to get some sense of what is your comfortable ticket size there? So these are the two questions I have.

Thanks, Debashish. I'll come to the latter part of the question first. See, if you look historically in 2018, the company's book was close to ₹14,000 crores- that was the peak it had reached. And even at that point of time, the largest project that was funded was some ₹400 - ₹450 crores, which meant the largest project was around 3% - 3.5% of the overall book size, not more than that.

Now if you look at it today at the end of Quarter 1, our book size is ₹5,500 crores. So obviously, if you do ₹400 - ₹450 crores, it's a significant risk. While if we do ₹400 -₹500 crores, it's easier to pick the book but we are creating a risk. So, we want to ensure that no fresh disbursement is more than 5% of our AUM at any point of time, from now on going forward.

Now coming back to a former question, you're right, debt equity ratio is 1.4:1, it’s very, very low. Financial organization operates only on leverage. So therefore, if we are able to execute our plan successfully, we should be able to achieve in the next 18-24 months a significantly higher number, possibly doubling of the debt-to-equity ratio. That's what we intend to do.

The important thing is, while we are choosing small projects. If we’re going to the larger projects, obviously, in view of our current rating, which is not very high; therefore the large projects are funded by very large financiers. We will need to take a significant hit on our margins, if we have to participate in it. While it will add to the AUM, its ability to add to the bottom line would be very, very limited.

Therefore, we want to be in a sweet spot wherein when we finance a projects, where risk- adjusted return is high, its ability to impair the balance sheet is limited and finally, more importantly, the margins that accrue are significant so that we are able to grow in a profitable manner.

Understood, sir. So is it fair to assume that going forward, our growth will be high and our NIM will keep on coming down because the current NIM that we report on that number, it is very difficult to fund projects, good projects in power and infra space consistently. So, is it a fair assumption that our NIM will come down and growth will be aggressive?

Currently, the NIM is high also because of the low debt to equity. So once the debt to equity keeps on increasing, as we start growing, NIM will come down. And the second thing to your first question in regards to growth - in this industry, there's always a significant amount of pre- payments. When you restart, the growth will take some time. So, the way we would like to call FY24-25 would be the year of stabilization, wherein internally the organization is geared up in terms of processes, practices, capabilities to be out into the marketplace. Then we grow.

Obviously, we're at a low base, so automatically, it will be growth. But significant growth would be happening in 2/ 3 quarters down the line. At this point of time, the critical task for us is liability management. Once we build confidence amongst the various financial institutions, whether the banks or others, then we'll be in a position to be out in the market and canvas larger projects. That's what we will be focusing on in the next few quarters.

One last question. So obviously, you have joined very recently, you may not have got sufficient time to analysis everything. But as far as our manpower capability is concerned and our risk management system is concerned, do you think that we are properly equipped in both the two cases to first stabilize and then grow.

I think, I had referred this earlier also; our portfolio quality is good. For example, we are primarily a financier in the power sector. If we actually look at the RBI published annual banking statistics report, and the increase in the power sector for the past 10- 15 years. And if one looks at the NPA percentage of PFS; that will clearly show that we have been significantly better than the average.

So therefore, the quality of the manpower that we have got is amongst the best in the country.

There's no doubt about it. We got derailed because of certain extraneous issues. Once those constraints are removed; we set in place, build the engagement and start going back to the market; there is no reason why growth should not come back to us.

Okay. And do you sharing this number, sir, what is the current NPAs under, in the process of resolution and how much have you provided for?

If we can look at the presentations, there Stage 3 assets and the net stage 3, etc., that we think is possible to get.

The next follow-up question is from the line of Debashish from Svan Investments.

Just taking this opportunity to ask a few more questions, sir, as there is no much question on the queue. So sir, again, as far as the macro this thing is concerned, there are 2 or 3 players in the name of PFC, REC who are also acting in the same space which you are in. Obviously, the size is very different.

So do you think that there is a sufficient space for a third player because if I talk to those guys, they are talking about very aggressive numbers of 15%, 20% growth on a very large book of like ₹4 lakh, ₹4.5 lakh crores, ₹5 lakh crores.

So do you think that there is a sufficient space. And my sense is that banks will also come back into funding corporate books because there is a pressure in retail and unsecured. So, is there a sufficient space for us to get the growth back that we are targeting?

That's a good question. See, the important thing is if you said they got ₹4 lakh- ₹5 lakh crores balance sheet size and that's the reason when they'll be focusing on large projects where the typical disbursements in few thousand crores, on a few tens of thousands crores- that's what they have been doing.

And therefore, there are a lot of small distributed projects also coming in, which would be anywhere between ₹50 crores to ₹200 crores. And they would not be focusing much on them, and that's what we intend to focus upon.

To your question, we are a credit starved country. There is space for lot of people in the country.

There is possibly space for a couple of more PFCs. So if you've got lots of money, you can set up an infrastructure finance company. It will be great to get into this space at this point of time.

Budget also; even government is spending ₹11 lakh crores in the infrastructure sector. Plus private sector capex is taking off. Even renewables, etc, is mostly in the private sector domain.

We're infrastructure deficit country. It's a great space to be in from 10-15-year perspective.

Ladies and gentlemen, we will take that as the last question. I would now like to hand the conference over to Mr. Balaji Rangachari for closing comments.

Thank you all. So basically, you would have listened to quite a few calls in the past few quarters.

Possibly after quite some time, this is the first quarter where we have witnessed a small uptick as far as the AUM is concerned. What I would like to reassure you is as a company is excellently poised. Once we do the internal correction, structural changes, we'll be getting back to the growth part.

It's not a question of whether PTC Financial Services will be able to execute a successful turnaround, but the question is when. We are clear about where we want to go. And the question is whether we'll reach to our goal in whether 18 months or 24 months, but definitely we'll be able to do so. And we thank you for your interest in our organization. Thank you. Good day.

On behalf of PTC India Financial Services Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.