Compelling Stock Pick With 44% Upside + Call Success Report By Amar Ambani Of IIFL

PTC India Finance Ltd: A compelling option! – BUY
CMP: ₹34.7, 1-yr Target: ₹50, Upside: 44.1%

25-30% pa loan growth sustainable without taking undue risks
We see PFS comfortably sustaining its strong loan growth momentum of 30% pa in the coming years. This would be driven by substantial investments in the renewable energy space that country will continue to witness. Government’s ambitious green energy capacity addition target and supportive policy impetus has opened a gigantic financing opportunity. Strong credibility and efficient and robust sanction process greatly positions PFS amid a benign competitive environment. No wonder that contribution of renewable energy in company’s loan assets and sanctions is creeping up fast. While being excited about growth, the management has been cautious while selecting the promoters for funding. Share of renewable projects in loan book is expected to cross 55% by end FY18.

Portfolio concentration a key risk, but is gradually receding
In project financing, loan concentration is the key risk that a financier has to live with. For PFS, it is more prominent given its small size. However, the trending of asset mix towards renewable segment is gradually de-risking balance sheet given granularity in renewable lending (lower ticket size) and smooth execution experience of the projects. NPLs in renewable portfolio are negligible. Even in thermal portfolio where high concentration is worrisome, PFS does not expect any exposure to turn bad in the near term. Rather, traction in this book has improved off-late as execution on many projects has picked-up. About 80% of the projects funded are likely to get commissioned in FY17.

Healthy lending franchise available at valuation of a PSU Bank
In our view, PFS’s RoA and RoE would settle at 2.7-2.8% and 16-17% in the long run. This would be underpinned by stabilization of spread and credit cost at 4% and 1% respectively. The company has room to respond to any increase in competitive pressure as cost of funding is moderating. PFS is trading at an undemanding valuation of 1x FY18 P/ABV; in-line with PSU Banks, which seems unfair considering higher inherent profitability, robust growth prospects and strong capitalization. Recommend BUY with a 12-month price target of ₹50.

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Symphony Ltd – Call Success
Reco Price: ₹1,956, Call Closure Price: ₹2,554, Total Return: 31%

We had recommended a BUY on Symphony Ltd in our Diwali Dhamaka Report released on November 10, 2015 for a target price of ₹2,554. The stock has touched our target in today’s trading session yielding a return of 31% from our recommendation price of ₹1956. Though we remain bullish on the company’s earnings growth, we believe upside would remain capped and the company is fairly valued at current price. We advise investors to Book Profit.

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Glenmark Pharmaceuticals: A dose of growth – BUY
CMP: ₹792, 1-yr Target: ₹1,000, Upside: 26.3%

Glenmark is set to capitalize on strong US pipeline with key upcoming launches like Zetia (Dec’ 16) that would drive 29% revenue cagr for US business. We expect Zetia benefit to sustain beyond FY17E while new launches in derma (Finacea) would support momentum. An increased pace of approvals would likely cushion the pressure in base US business as seen from slower per ANDA revenues in recent quarters. Domestic business is likely to clock 1.5-1.8x IPM growth even as we note that launch of Teneligliptin has largely offset the loss from Sitagliptin suffered in H2 FY16; moreover, company has gained market share in key therapeutic areas like cardiac, diabetes and respiratory in the past 2-3 years. Emerging markets (Lat Am + ROW), especially Venezuela, have been the pressure point due to volatile macro and currency depreciation rather than any demand specific issue; that said, company would not deploy any significant investment in these markets and instead focus on US, India and Europe which would account for ~85% of FY18E revenues. We forecast ~18% revenue and 33.5% EPS cagr over FY16-18E on back of sustained momentum in India and healthy US pipeline and retain BUY for 1-year target of ₹1,000, based on 20x FY18E EPS. Importantly, Glenmark is amongst the cheapest in terms of FY18E PE multiples amongst large cap pharma universe which would limit potential downside in our view. Lack of key expected approvals and collateral impact on margins would be the key risks to our reco.

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