PTC India Financial Services (PFS), which lends to energy projects, is diversifying its portfolio to include infrastructure annuity projects such as roads as rising bad loans and slowing growth cloud the outlook for power sector lenders.
Annuity projects are considered safe because they offer a fixed return. India has set a target to award 25,000km of road projects in FY17 under the ministry of road transport and highways and National Highway Authority of India.
India’s push for green energy has also made PTC India’s subsidiary recalibrate its growth strategy, with around 45% of its Rs10,000 crore loan book’s exposure towards clean energy projects, said Deepak Amitabh, chairman and managing director, PTC India in an interview.
The diversification by PFS comes in the backdrop of bad loans clouding the outlook for power sector lenders. As a result of subdued investments in the power sector, companies are seeing limited lending opportunities, and slowing disbursements and loan book growth.
“Around one and a half years back, we consciously started to diversify PFS’s exposure to sectors such as roads and electricity transmission. The idea was to not put everything into the power sector but also other growth sectors in the Indian infrastructure space. The idea was to lend to annuity projects,” said Amitabh.
Meanwhile, another subsidiary—PTC Energy Ltd—with 250 megawatt (MW) of operational renewable energy projects, is planning to develop a 2,000 MW portfolio of clean energy projects in the next five years.
The company’s strategy is driven by the government’s focus on infrastructure creation. India will invest about Rs3.96 trillion in creating and upgrading infrastructure in 2017-18, as announced by finance minister Arun Jaitley in his 1 February budget speech. The government has made an allocation of Rs2.41 trillion for roads, railways and ports in 2017-18.
India’s demand for renewable energy is expected to grow seven-fold in 2035, as per the latest BP Energy Outlook, which means the share of renewable energy in the country’s fuel mix will rise from 2% to 8% in 2035.
Analysts say the company is benefiting from its exposure to the renewable energy sector, which is seeing good demand.
“Out of total commitment of Rs600 crore in PTC Energy, the company has invested Rs475 crore as of H1FY17. The subsidiary will spend the same to commission wind power capacity to the tune of 250 MW by FY18E,” said ICICI Securities in a 17 November note.
“The PTC management expects to earn IRR in the range of 14-16% on these projects,” the note said.
“PTC India’s foray into renewable energy has picked up momentum,” added Antique Research in a 15 November statement.
India, the third-largest energy consumer after the US and China, plans to achieve 175 gigawatt of renewable energy capacity by 2022 as part of its global climate change commitments.