RATING RATIONALE 2 Apr 2020 PTC India Financial Services Limited Brickwork Ratings Revises the ratings for the Non-Convertible Debentures of ₹. 200.88 Crores of PTC India Financial Services Ltd. Particulars: Amount (₹ Cr) Rating* Instrument** Tenure Previous Previous Present Present (May, 2019) BWR AA BWR AA- NCD 200.88 200.88 Long Term Stable Stable INR Two Hundred Crores and Eighty Eight Lakhs Total 200.88 200.88 Only *Please refer to BWR website www.brickworkratings.com/ for definition of the ratings ​ ​ ** Details of NCD is provided in Annexure-I RATING ACTION / OUTLOOK Brickwork Ratings (BWR) revises the ratings of PTC India Financial Services Limited (PFS or the Company) outstanding NCDs to ‘BWR AA-’ (Stable), as tabulated above. The rating revision is on account of consistent degrowth in the AUM in the last three quarters due to funding challenges faced by NBFCs, resulting in curtailed disbursements, stressed asset quality due to high exposure to the power sector and lower profitability due to higher credit costs. The rating continues to derive comfort from the strong parentage of PTC India Ltd, diversified portfolio, comfortable capitalisation and adequate liquidity. Coronavirus disease (COVID-19), declared a pandemic by the World Health Organisation (WHO), has become a full-blown crisis globally, including in India. As a containment measure, www.brickworkratings.com Page 1 of 9 ​ ​ ​ the Indian Government, on 24 March 2020, announced a 21-day nationwide lockdown. As per BWR, financial institutions, mainly those lending to the retail low-income borrower segments could be the most impacted. The 3-month moratorium announced by the Reserve Bank of India on interest and principal on bank debt will provide some cushion to the lending community to realign its collection machinery and operations during this period. However, lenders' ability to ensure credit discipline among borrowers as the 3-month moratorium ends and to collect accumulated interest and principal dues on a timely basis after this period will be a key monitorable. BWR is actively engaging with its clients on a continuous basis and taking updates on the impact on its operations and liquidity situation. BWR will take appropriate rating actions as and when it deems necessary and will publish the same. Outlook: Stable BWR believes the business risk profile of PFSwill be maintained over the medium term, with an improvement expected in profitability and asset quality, supported by recoveries from non-performing assets and lower incremental slippages. The Stable outlook indicates a low likelihood of rating change over the medium term. KEY RATING DRIVERS Credit Strengths: ● Strong parentage of PTC: PFS is promoted by PTC India Ltd (PTC), which in turn is promoted by NTPC Limited, Power Grid Corporation of India Limited, Power Finance Corporation Limited and NHPC Limited, holds 64.99% stake in the company. PTC is a leading player in power trading in India; since PFS provides financial assistance to entities in the power sector, PFS is a strategically important subsidiary of PTC and hence, continues to provide strategic, management and funding support to the company. PFS also benefits from PTC’s strong domain knowledge and healthy customer relations. BWR expects PTC will continue to extend its support both operationally and financially, given its importance in the power sector. ● Comfortable Capitalisation: PFS wass comfortably capitalised, with a total capital adequacy ratio (CAR) of 23.02% as on 31 December 2019. The company has tangible net worth of Rs 2,112 Crs and total debt of Rs 9,864 Crs resulting in a moderate gearing of 4.67 times as on 31 Dec 2020. The net worth coverage for net non-performing assets was 21.04% times as on 31 Dec 2020. With the proposed plans of capital raising in FY21, www.brickworkratings.com Page 2 of 9 ​ ​ ​ BWR expects further improvement in the capital position of PFS, with a reduction in gearing levels. The ● Adequate Liquidity: The company has adequate liquidity, as reflected in its structural ​ liquidity profile dated 31 December 2019, with no negative cumulative mismatches across various buckets. As on 20 March 2020, the company had cash and cash equivalents of Rs 600 Crs and unavailed bank lines of Rs 1,500 Crs, against repayments of Rs 1,026 Crs for the next 3-4 months. ● Diversified portfolio mix: PFS has extended financial assistance to the Power and ​ Infrastructure sectors. As on 31 December 2019, financial assistance to renewable energy projects contributed to 49% of the portfolio, thermal power generation projects contributed to 12% of the portfolio as on 31 Dec 2019, transmission and distribution projects contributed to 22.51%, and the remaining portfolio consisted of financial assistance to roads, ports, HAM and other infra projects. PFS is making a conscious effort to reduce its exposure to thermal power projects and increase its focus on financing projects in the renewable energy sector and other related infrastructure sectors; BWR expects this will improve the business risk profile of PFS over the medium term. Credit Risks: ● Stressed Asset Quality, albeit improved recoveries: PFS is highly concentrated towards the power sector, which is currently under stress due to issues including the volatility of raw material prices and its availability, tariff mismatch due to increased competition in renewable energy sector and the poor health of state DISCOMS, coupled with high-ticket-size exposures. The gross and net NPAs increased to 7.22% and 3.84%, respectively, as on 31 December 2019 from 6.04% and 3.12%, respectively, as on the end of the previous fiscal. However, the incremental slippages in FY20 have moderated, and the company was also able to make better recoveries with the successful resolution of stressed accounts. Going forward, the company’s ability to manage its exposure to the power sector and improve recovery will be a key monitorable. ● Declining Profitability and loan book: Due to funding challenges faced by NBFCs after September 2018 that resulted in curtailed disbursements in the last three quarters, the loan portfolio of PFS has witnessed degrowth from Rs 13,321 Crs in FY19 to Rs 12,000 Crs in 9MFY20. At the same time, the company’s profitability has also declined in the last www.brickworkratings.com Page 3 of 9 ​ ​ ​ few quarters due to the increased cost of funds and credit costs, with Return on Assets (ROA) and Return on Net Worth (RONW) declining to 1.13% and 6.66% for Q3FY20 from 1.40% and 9.19%, respectively, for FY19. However, in Q3FY20, PFS has got its existing credit lines of Rs. 1,650 crore renewed from banks with reset at lower interest rates, fresh long-term credit lines of Rs. 1,100 crore and in-principle/letter of intent (LOI) for credit lines of Rs. 1,200 crore. BWR expects growth in disbursements will resume in FY21, with fresh sanctions. However, the company’s ability to improve profitability while managing credit costs will remain a key monitorable. ANALYTICAL APPROACH AND APPLICABLE RATING CRITERIA: For arriving at the rating, BWR has considered the standalone financial profile of PFS and has applied its rating methodology as detailed in the Rating Criteria below (hyperlinks provided at the end of this rationale). RATING SENSITIVITIES Positive: Going forward, the company’s ability to reduce its exposure to the power sector, ​ sustainably growing its loan book with improved asset quality, timely resolution and recoveries, and improved profitability will be key rating monitorables. Negative: Any further deterioration in asset quality, degrowth in loan book and profitability will ​ be key rating sensitivities. LIQUIDITY POSITION: Adequate The company has adequate liquidity, as reflected in its structural liquidity profile dated 31 December 2019, with no negative cumulative mismatches across various buckets. As on 20 March 2020, the company had cash and cash equivalents of Rs 600 Crs and unavailed bank lines of Rs 1,500 Crs against repayments of Rs 1,026 Crs for the next 4 months. COMPANY PROFILE PTC India Financial Services Limited (PFS), promoted by PTC India Ltd, was incorporated in 2006 and commenced operations in May 2007. PTC India Limited (PTC), a leading player in power trading in India, owns a 64.99% stake in PFS. www.brickworkratings.com Page 4 of 9 ​ ​ ​ PFS is registered with the Reserve Bank of India as an infrastructure financing and systemically important NBFC. It provides loans (including mezzanine funding) and equity financing to projects for the generation, transmission, and distribution of power; for fuel sources; fuel-related infrastructure, such as gas pipelines, liquefied natural gas terminals, ports, equipment manufacturers; and engineering; procurement and construction contractors. Mr. Deepak Amitabh is the chairman of the board, and Dr. Pawan Singh is the company’s managing director & CEO. www.brickworkratings.com Page 5 of 9 ​ ​ ​ KEY FINANCIAL INDICATORS (in Cr) ​ ​₹ ​ Key Parameters Units FY18 FY19 Result Type Audited Audited Loan Portfolio Rs in Crs 12816 13,321 Total Income from Operations Rs in Crs 1,185 1,334 PAT Rs in Crs -100 184 Tangible Net Worth Rs in Crs 1,939 2,067 GNPA % 6.54 6.04 CRAR % 21.19 21.92 Gearing Times 5.34 5.28 Key Parameters Units 9MFY19 9MFY20 Result Type Unaudited Unaudited Loan Portfolio Rs in Crs 13,390 12,000 Total Income from Operations Rs in Crs 1,005 1,031 PAT Rs in Crs 147 103 Tangible Net Worth Rs in Crs 2,036 2,112 GNPA % 6.85 7.22 CRAR % 21.65 23.02 Gearing Times 5.32 4.67 KEY COVENANTS OF THE INSTRUMENT/FACILITY RATED: Nil NON-COOPERATION WITH PREVIOUS RATING AGENCY IF ANY: Nil www.brickworkratings.com Page 6 of 9 ​ ​ ​ RATING HISTORY Instrument S.No Current Rating (Mar 2020) Rating History /Facility Amount Type Rating 15 May 2019 4 Apr 2018 31 Mar 2017 (Rs.