ptc india financial services ltd share price Management discussions

MANAGEMENT DISCUSSION AND ANALYSIS REPORT

Industry Scenario

"Entities such as PTC India Financial Services Ltd have been attempting to look beyond opportunities in the power sector and create a pan infrastructure portfolio with limited success." (Excerpts from the Report of the Task Force National Infrastructure Pipeline (NIP)of Niti Ayog)

India is the fastest-growing trillion-dollar economy in the world after USA, China, Japan and Germany, driven by key structural reforms and further reduction in external vulnerabilities. As India celebrates its 75 ^th anniversary of independence, the country is developing into a significant player in the world economic system. India has the fifth-largest economy in the world, and the country has a promising future. It is impossible to overstate how important infrastructure is to economic progress. The key to acceleration and long-term sustainability of economic growth is to invest in high-quality infrastructure. This benefits the productivity and efficiency of Indian manufacturing enterprises, according to the empirical findings. It also encourages agricultural and rural development and plays a key part in reducing poverty. Additionally, empirical data supports the idea that Indias infrastructure will contribute to the countrys overall economic growth.

Indias GDP growth has been 7.2% in fiscal year (FY) 2023 and expected to grow at 6.5% in FY2024, supported by increased public investment in infrastructure and a pickup in private investment. Power, roads, telecommunications, railways, irrigation and urban infra accounted for ~95% of the infrastructure investment. Centre and States are the major funding sources with participation from the private sector. Under Budget 2023-24, capital investment outlay for infrastructure is being increased by 33% to Rs.10 lakh crore (US$ 122 billion), which would estimate 3.3% of GDP and almost three times the outlay in 2019-20.

India is on the path to a sustained economic recovery, thanks to the vigorous countrywide drive to deliver safe and wide-reaching COVID-19 vaccinations. The Government of Indias policy to improve logistics infrastructure, incentives to facilitate industrial production, and measures to improve farmers income will support the countrys accelerated recovery. Government of India has retained its focus on fiscal consolidation and implemented structural reforms for further growth in the infrastructure sector in general.

A new evaluation of the prospects for the world economy is being conducted amid the unsettling calm that currently reigns. Global financial markets volatility has decreased, while threats to financial stability from banks failing in some industrialized economies have increased. Following its resilience to numerous and frequently converging shocks in 2022, including the war in Ukraine, persistently elevated food and energy inflation, and the tightening of financial conditions in response to aggressive and synchronized monetary policy tightening worldwide, available projections point to a weaker outlook for the global economy in 2023 and 2024. High debt levels caused great distress in the weakest nations.

Infrastructure development is essential for India is to achieve its goal of having a $5 trillion economy by 2025. In order to boost the growth of the infrastructure industry, the government has introduced the National Infrastructure Pipeline (NIP), along with other programs like "Make in India" and the production- linked incentives (PLI) programme. Historically, funding for transportation, energy, and water and irrigation has accounted for more than 80% of the nations infrastructure spending.

In Dec 2019, Government of India has envisaged expenditure of Rs.102 Lakh crore on Infrastructure till FY2025 under National Infrastructure Pipeline (NIP). The projects will be implemented in the next five years as part of the governments spending push in the infrastructure sector. To achieve the GDP target of $5 trillion by 2024-25, India needs to spend about $1.4 trillion ( 100 Lakh crore) over this period on infrastructure. In March 2022, the government has increased the number of projects under NIP from existing from 6,835 to 9,335 projects cumulatively costing ~ Rs.132 lakh crore till fiscal 2025, to build infrastructure projects and drive economic growth, energy, roads, railways and urban projects are estimated to account for the bulk of projects (around 70%) etc.

Investments in building and upgrading physical infrastructure, especially in synergy with the ease of doing business initiatives, remain pivotal to increase efficiency and costs. The governments focus on building infrastructure of the future has been evident given the slew of initiatives launched recently. The US$ 1.3 trillion national master plan for infrastructure, Gati Shakti, has been a forerunner to bring about systemic and effective reforms in the sector, and has already shown a significant headway.

With the aim to achieve a US$ 5 trillion GDP, and to steer the Indian economy for the next 25 years under the aegis of PM Gati-Shakti, infrastructure development shall be key area of capex outlay. The increase in Budget outlay by 35.4% (from Rs.5.54 lakh crores to Rs.7.50 lakh crores in FY 2022-23) reflects the Governments commitment for economic growth and sustainable development. Out of the above, the government has allocated Rs.1 trillion for providing 50-year tenure interest-free loans to the state governments for catalyzing investments which would further lead to creation of infrastructure projects at the local level.

A major component of the governments campaign to create an Atmanirbhar Bharat is the PLI Schemes. The PLI Scheme is made to encourage increased production for a small number of suitable anchor businesses in each of the chosen sectors who will spend money on R&D, equipment, and technology. The formation of a broad supplier base for the anchor units developed under the strategy, which will result in a significant increase in primary and secondary job opportunities, will have positive spillover effects as well. The programs are anticipated to enhance output by approximately Rs.40 lakh crore and create an additional 60 lakh jobs in 14 different industries over the course of the next five years.

The Governments policy to increase private sector participation, with the Government permitting 100% Foreign Direct Investment (FDI) has proved to be a boon for the infrastructure industry with many private players entering the business through the public-private partnership (PPP) model. Indian infrastructure sector is facing a paradigm shift moving towards timely completion of projects as against the general phenomenon of delay in completion of projects due to the delay in obtaining approval and clearances, lack of co-ordination between various departments and the resultant delay in project completion. The mix of Public Private Participation model is continuously increasing, thereby, increasing confidence, support and investment in the infrastructure sector.

Increased infrastructure spending gives the economys potential growth a vital boost. Through an increase in capital spending, the government has recently given infrastructure investment and development a stronger push. This drive has taken place during a period of economic crisis when private sector capital spending has been restrained. From Rs.5.5 lakh crore in FY-22 to Rs.7.5 lakh crore in 2022-23 (BE), the outlay (goal) for capital spending saw a dramatic increase of 35.4%.

The Public Private Partnership Appraisal Committee (PPPAC), the apex body for appraisal of PPP projects in the Central Sector has streamlined appraisal mechanism to ensure speedy appraisal of projects, eliminate delays, adopt international best practices and have uniformity in appraisal mechanism and guidelines. The PPPAC is chaired by Secretary, Department of Economic Affairs (DEA) with Secretaries of Department of Expenditure, Department of Legal Affairs, the Sponsoring Ministry/Department and CEO, NITI Aayog as members to consider and appraise the proposals for Central Sector PPP Projects. The Public Private Partnership Appraisal Committee has cleared 79 projects with a total project cost of Rs.2,27,268 crore from FY15 to FY23.

NBFCs have grown in importance in recent years, playing an essential role in providing finance to individuals and enterprises that are underserved by traditional banks. This is particularly true in rural and semi-urban areas, where NBFCs have filled the void left by banks. The flexibility of NBFCs to be flexible in their lending processes is one of their primary advantages. Unlike banks, which have rigid lending criteria, NBFCs can be flexible in their lending operations to suit the requirement of their clients. This has made them an appealing choice for people seeking more personalized financial services. They are financial institutions that offer a variety of banking services such as loans, credit facilities, and investments.

The Report of the Task Force National Infrastructure Pipeline (NIP) expects that out of the total sources of funding for the National Investment pipeline, 15%-17% of the funding is expected to come from the NBFCs and the balance is expected to come from a judicious mix of Centre-State Budget, PSUs, Banks, Equity, Bond markets etc. Capital outlay by Public Sector NBFCs are therefore projected to grow at 12% and the private sector NBFCs are projected to grow at 15% given the lower base. NBFCs have played a crucial role as one of the key contributors to Indias economy by providing a fillip to infrastructure, employment generation, wealth creation and access to financial services for the rural and weaker sections of society.

In the last few years, NBFCs have contributed more to infrastructure lending than banks. As Indias economy grows further, requirement for credit is bound to surge, and NBFCs, along with banks, can act as the key credit facilitators, which is likely to give a strong push to the growth and development of the Indian economy. Infrastructure Finance Companies (IFCs) are likely to post 10%-12% loan growth in FY23 on rising credit demand and renewed government efforts to revive public works projects.Banks are lending to NBFCs again, thanks to increased credit demand and better asset quality, which is causing an increase in lending. In March 2023, bank lending to NBFCs increased by 30.2% year over year to Rs.13.3 lakh crore). This is because of increased loan demand, stable asset quality trends, and improved collection effectiveness.

In addition to developing world class infrastructure, our country is also committed to meeting its commitments under the Nationally Determined Contributions (NDCs) submitted by countries under the Paris Agreement of the United Nations Framework Convention on Climate Change (UNFCCC) which represent pledges on climate action that seek to limit global warming to well below 2?C, preferably to 1.5?C, over pre-industrial levels. Thus a balance between development and growth leading to sustainable development has not only remained a buzzword but has become a modus operandi for many businesses across the globe.

Climate change has today emerged as an unprecedented existential crisis. Emerging countries like India will need greater access to green finance and appropriate green instruments to facilitate this transition particularly to support climate change vulnerabilities. As overwhelming as the challenges are, PFSs unshakable belief that business possesses immense capability to make a transformational contribution has become a driving force behind making sustainability the bedrock of our business strategy, leading towards sustainable and inclusive growth in a unified dimension. PFS has been a carbon positive company for the last decade and is driven by the commitments under the nationally determined contributions. Pursuing a proactive strategy of decarbonization PFS is increasing its renewable energy footprint in answering green infrastructure by scaling up carbon neutral projects and ensuring in all our business verticals. PFS is now scaling up the efforts in E-mobility sector which would enable us to move a step closer towards meeting our Countrys ambitious targets under the NDCs sustainable development goals within the energy, transportation, roads and water treatment projects.

PFS over the years has moved away from the traditional power business of thermal and hydro and built a book around green and sustainable business and other govt focused sectors such as ports, transmission, HAM Road projects etc. The focus will continue to be on green sustainable sunshine sector. While a large part of AUM constitutes renewable and road business, with the advent of new sectors like E-mobility, water management; waste of energy; HAM projects in various sectors including road, water; airports; ports; transmission and many more. Post COVID, with government focus on revival of the economy infrastructure sector will play a pivotal role and we will continue to see huge funding opportunities in this sector in the next few years.

Renewable Energy Sector Outlook

Indias mission to become a $5 trillion economy hinges on rapid growth in the energy sector. Energy consumption in the country has almost doubled since 2000 and is set to grow further. This calls for huge investments over the next few years. It also entails segment specific reforms in power generation, transmission and distribution and storage, to ensure uninterrupted power supply to urban and rural areas and meet the massive infrastructure needs of what may soon become the worlds most populous country.

The level of availability and accessibility of affordable and quality power is also one of the main determinants of the quality of life. India is the third largest producer after China and USA and second largest consumer of electricity in the world and had an installed power capacity of 416.05 GW as of March 2023. Electricity demand in the country has increased rapidly and is expected to rise further in the years to come. In order to meet the increasing demand for electricity in the country, massive addition to the installed generating capacity is required.

The Electricity generation during 2022-23 was 1624.158 BU as compared to 1491.859 BU generated during 2021-22, representing a growth of about 8.87%. The electricity generation target (Including RE) for the year 2023-24 has been fixed as 1750 Billion Unit (BU). i.e. growth of around 7.2% over actual generation of 1624.158 BU for the previous year (2022-23). The electricity generation target for the year 2023-24 comprising of 1324.110 BU Thermal; 156.700 BU Hydro; 46.190 Nuclear; 8 BU Import from Bhutan and 215 BU RES (Excl. Large Hydro).

According to the amended Nationally Determined Contributions (NDC), India is now committed to achieving around half of total installed capacity from nonfossil fuel-based energy resources by 2030. As of May 2023, the country had deployed a total of 173.61 GW of renewable energy capacity. Furthermore, projects with a total capacity of about 82 GW at various stages of implementation and about 41 GW under tendering stage. This includes 64.38 GW Solar Power, 51.79 GW Hydro Power, 42.02 GW Wind Power and 10.77 GW Bio Power. India ranks fourth in the world in terms of renewable energy installed capacity, fourth in wind power capacity, and fourth in solar power capacity.

One of the key pillars for the inclusive sustainable growth of the nation is generation of power from renewable sources which is crucial for the economic growth and sustainable development. The Government of Indias focus on attaining ‘Power for all has accelerated capacity addition mainly through renewable sources in the country.

India has set up an ambitious target of 280 GW of installed solar capacity by 2030. India is likely to add an estimated 20 GW of renewable energy in FY24, Further, The government has also decided to invite bidders to bid on 50 GW of renewable energy capacity per year for the next five years i.e., from FY-24 till FY-28. These annual bids of ISTS (Inter-State Transmission) connected renewable energy capacity will also include development of wind power capacity of at least 10 GW per annum. Commitments made at the COP26 summit such as increasing non-fossil fuel power capacity to 500 GW and meeting 50 percent energy requirement through renewables by 2030, strengthen prospects for the renewable energy sector. There remains large under-development solar, wind and hybrid capacities of more than 55 GW.

The India Renewable Sector is having limitation in terms of Indias grid infrastructure, which requires a significant revamp to accommodate the fluctuating and intermittent nature of power from renewables. Other major challenges are Indias EPC capability to carry out execution of solar and wind projects at a scale of 50s to 100s of GW per year, acquisition of land for large scale renewable projects where India owns fertile land farms for agricultural use. The availability of adequate funding avenues at cost competitive rates remains critical to achieve these capacity targets.

Govt. of India made an additional allocation of Rs.19,500 crore in the budget for PLI scheme for domestic manufacture of high efficiency modules (with priority to fully integrated manufacturing units from polysilicon to solar PV modules) which will provide further opportunities for PFS to partner in the sun-shine sector as a credible partner for the overall development of the sector.

Power Transmission Sector Outlook

The countrys power transmission sector has witnessed unprecedented growth in the past five years, with line length and transformer capacity growing at an average annual growth rate of 6.5 per cent and 9.6 per cent, respectively. Further, both operational and financial performances of the transmission utilities have witnessed an improvement in the past few years. The transmission system has expanded over the years for evacuation of power for evacuation of power from generating stations to load centre through Intra State and Inter State Transmission System. With the transmission line capacity addition of 180481 ckm and transformer capacity addition of 654512 MVA from FY-15 till FY-23, the country has become one of the largest synchronous interconnected electricity grids in the world with 4,71,817ckm of transmission line and 11,85,058 MVA of transformation capacity (as on Apr23). Besides, our inter-regional capacity increased by whopping 212% to 1,12,250 MW since 2014.

The above transmission capacity addition has benefitted in development of power sector in the country.

Further, Government of India has focused on development of green and dedicated corridor for evacuation of generated power from renewable energy projects. The augmentation of transmission and distribution network capacity is required to meet the generation demand from various sources, which will lead to enough business potential in the sector for PFS in coming years.

Ministry of Power has accepted the Recommendations of the Task Force Report to adopt the Future-Ready Transmission System in India. The Task Force has recommended Centralized Remote Monitoring, Operation of Substations including SCADA (supervisory control and data acquisition), Flexible AC Transmission devices (FACTs), Cyber Security, Drones & Robots in construction/inspection of transmission assets etc. A future-ready transmission system can help improve grid stability by enabling the integration of advanced technologies such as smart grids, energy storage systems, and demand response systems.

Going forward, an estimated Rs.2.6 trillion investment is required in the transmission sector to meet future peak load. The private sector is expected to play an important role in achieving the countrys grid expansion targets as competitive bidding gains momentum at both interstate and intra-state levels. Several grid expansion programmes such as the GEC and cross-border links are underway to expand the physical grid infrastructure. Further, transmission utilities, at the central and state level, are expected to invest significantly in new technologies to make grids more reliable, resilient, secure and smart. The sector is also expected to immensely benefit from major policy reforms including the Electricity Act amendments and the Tariff Policy amendments.

Roads and Highways Sector Outlook

Roads are part of an integrated multimodal system of transport which influences the pace, structure and pattern of economic development. Road provides crucial links to airports, railway stations, ports and other logistical hubs and acts as a catalyst for economic growth by playing a critical role in the supply chain management. In terms of the worlds largest road network, India is currently second only to the United States. China has fallen to third place as India road network has grew 59 per cent in the last 9 years to become the second largest only after USA. The countrys road infrastructure now stands at 1,45,240 km as compared to 91287 km in 2013-14. The share of roads sector investment in the overall infrastructure investment was ~17% between fiscals 2019 and 2022, rising at ~19% CAGR. As part of bolstering infrastructure in the country, which aims to become a USD 5 trillion economy in the coming times, building high quality roads and ensuring smooth connectivity is a key priority.

This road network delivers 60% of the countrys commodities and 87% of its passenger traffic in India. National highways, expressways, state highways, main district roads, other district roads, and village roads make up Indias road network. While national highway building has been a priority, state highways, district roads, and rural roads continue to account for the majority of the road network.

The market for roads and highways in India is expected to increase at a CAGR of 36.16% between 2016 and 2025, owing to increasing government measures to upgrade the countrys transportation infrastructure. The National Highways Authority of India (NHAI) is expected to raise Rs.15,000 crore via Investment Trusts (InvITs) in FY24.

The total expenditure of the Road Transport and Highway Ministry in 2023-24 is estimated at Rs.2,70,435 crore. This is 25% higher than the revised estimates for 2022-23. The highest expenditure (60% of the total expenditure) is towards NHAI. In 2023-24, NHAI is allocated Rs.1,62,207 crore, all of which is budgetary support. NHAI has a high debt burden due to increased borrowings in the past few years. Upon the recommendations of several Committees, the Ministry has increased the budgetary allocation towards NHAI, and reduced its need to borrow from the market.

PM Gati Shakti National Master Plan to encompass the engines for economic transformation, seamless multimodal connectivity, and logistics efficiency. Expressways to be augmented in 2023-24 to facilitate faster movement of people and goods.

Sustainability Infra Sector Outlook

Few of the sunshine green sustainable sectors that PFS will additional focus on going forward will include e-mobility, sewage treatment, waste management etc. PFS has the policy to prioritise for new arising infrastructure sector projects and look forward to funds those projects. Green or Sustainable Infrastructure is gaining popularity which has opened the way to look for opportunities to fund new sector like E-Mobility, Sewage Treatment Plant, Waste Management projects, Desalinization of water, E-Waste Management etc. PFS is shifting its focus towards sustainable infrastructure projects.

E-Mobility: Transportation is a basic requirement of modern life. it also contributes significantly to greenhouse gas emissions. It is expected that the transportation account for around 20%-25% of all energy-related greenhouse gas emissions. It has become essential to adopt electric car to curb the carbon emission. It is also critical to transition to electric vehicles (EV) in order to satisfy national emission targets and the global 1.5-degree Celsius climate change objective. Fortunately, over 50% of Indian states have EV policies that provide perks such as monetary subsidies for EV purchases, exemption from road tax, car registration costs, and reduced EV loan interest rates. Furthermore, the policies encompass measures for public transit.

The future of E mobility is set to shift as a result of climatic change, growing fuel prices, and urban transportation issues.. According to NITI Aayog and Rocky Mountain Institute, Indias EV market could touch US$152.2 billion by 2030. Moreover, about 80% of two- and three-wheelers and 50% of the countrys four-wheelers would be electric vehicles. This trend demonstrates an enormous possibility for Financial Institution to look funding of viable projects. Indias electric vehicle sector achieves record sales across all vehicle segments, accounting around 5.50% of total car sales. In FY 2022-23, India recorded EV sales of 12,43,258 units, representing a 154% year-on-year increase over FY 2021-22 EV sales of 4,90,210 units across all vehicle classes. EV sales in fiscal years 2022-23 are more than 2.5 times higher than in fiscal years 2021-22. In fiscal year 2022-23, 53,843 electric four-wheelers were registered, representing a 154% increase year over year. High-speed e-2 Wheelers had the greatest segment share and a Y-0-Y growth rate of 179% over FY 2021-22 sales, with 7,79,158 units sold in FY 2022-23. In fiscal year 2022-23, a total of 4,07,381 electric 3Ws were sold, up from 1,87,028 the previous year.

Transportation sector has also been identified as one of the major sectors for local pollution resulting in rise in air pollution. In a move to address the issues of National energy security, vehicular pollution and growth of domestic manufacturing capabilities Government of India unveiled the ‘National Electric Mobility Mission Plan (NEMMP) 2020. The Department of Heavy Industry (DHI) launched Phase-II of the Scheme on 8^th March 2019, with the approval of Cabinet with an outlay of Rs.10,000 crores for a period of 3 years commencing from 1^st April 2020. DHI, has approved the sanction of 5,595 electric buses to 64 Cities. PFS has been a pioneer in funding one of the first projects in the electric vehicle public transportation sector by assisting manufacturing and operations of more than 350 e-Buses across 6 major cities in the country. PFS intends to leverage its experience in funding this sun-shine sector by funding more projects leading to reduction in vehicular pollution and sustainable development.

Sewage and Waste water Treatment: Rapid urbanization and industrialization have compounded the problem. As per the report published by Central Pollution Control Board (CPCB) in March, 2021, sewage generation from urban areas in the country is estimated at 72,368 million litres per day (MLD), against which sewage treatment capacity of 31,841 MLD was available.

The India wastewater treatment plants market stood at USD 2.6 billion in 2020 and is further projected to reach USD 5.3 billion by the year 2027, growing at the CAGR of 10.8% in the forecast period. Indias wastewater treatment plants market is growing rapidly due to stringent government regulations in India and increasing water pollution. Further, NMCG is the Cabinet approved nodal agency has laid out a total outlay of Rs.20,000 crore for implementing Namami Gange in India for cleaning, rejuvenation, and protection of the river Ganga. A total of 153 sewerage infrastructure projects have been sanctioned in eight (8) States (Uttarakhand, Uttar Pradesh, Bihar, Jharkhand, West Bengal, Delhi, Haryana, and Himachal Pradesh) till date to create/rehabilitate 5065 MLD sewage treatment capacities and Sewer network of 4972 Km at a cost of Rs.23,305 crore along Ganga and its tributaries. Out of 153 sewerage infrastructure projects, 56 projects are completed which have created, ~670 MLD sewage treatment capacity and are presently in operation. There is a budgetary allocation of Rs.65,549 crores in FY23 under various program of Sewage and Waste water Treatment across India.

Solid Waste Management: The Indian waste management market is witnessing a healthy growth rate, owing to the high population density and increased industrial activity, which is generating high amounts of wastes, both hazardous and non-hazardous. Waste Type includes Municipal Solid Waste, Hazardous Waste, E-waste, Plastic Waste, Bio-Medical Waste. The Indian waste management industry offers huge potential, as only 30% of the 75% recyclable waste is being recycled currently. Shortage of proper policies for collection, disposal, and recycling and the lack of efficient infrastructure are few of the many reasons leading to poor waste management in the country. Many companies are coming up with innovative ideas to manage wastes, as well as convert them into valuable resources. While the above sector will be the focus for PFS, the company will continue to look to diversify its portfolio in green and sustainable businesses like green hydrogen etc.

Financial and Operational Performance

In FY 2022-23 the total income decreased by 17.72% from Rs.968.74 crore in FY 2021-22 to Rs.797.08 crore. However, this got offset significantly by decrease in finance cost by 25.50% to Rs.431.91 crore as compared to Rs.579.77 crore in FY 2021-22. In FY 22-23, the Spread on earning portfolio has decreased to 2.83% from 3.00% and NIM on earning portfolio has improved from 4.19% to 4.23%. The other expenses increased by 20.52% to Rs.20.50 crore during FY 2022-23 as compared to Rs.17.01 crore in FY 2021-22, the increase in expenses is majorly on account of CSR expenses and resumption of normal office post uplift of covid restriction. Other income decreased by 60.93% to Rs.6.20 crore during FY 2022-23 compared to Rs.15.87 crore in FY 2021-22 as Company had received interest on income tax refund amounting to Rs.15.27 crore in FY 2021-22. Provision for Impairment on Financial Instruments has decreased to Rs.80.69 crore in FY 2022-23 from Rs.167.85 crore in FY 2021-22.

During FY 2022-23, PFS received fresh sanctions of short-term loans of Rs.300 crore from IIFCL which was a new lender to company. During the year, the Debt/ Equity ratio of the Company improved to 2.09 from 3.14 in FY 2021-22. Further, the ratio of long-term borrowings to short-term borrowings has strengthen to 98:2 in FY 2022-23 as against 95:5 in FY 202122. The company is contemplating to maintain majority of its borrowings in for of long term credit lines to have better ALM and cash flow. The Company has maintained sufficient liquidity in the form of High Quality Liquid Assets (HQLA) as per RBI guidelines and undrawn lines of credit to meet its financial obligations. However, the Company is in the process of raising credit lines/funds to improve the liquidity and achieve growth.

The profit before tax (PBT) for FY 2022-23 stood at Rs.232.37 crore compared to Rs.173.91 crore in FY 2021-22. The profit after tax (PAT) for FY 2022-23 stood at Rs.175.81 crore against Rs.129.98 crore in FY 2021-22.

As on 31^st March 2023, PFS exposure into Renewable (mainly Solar and Wind) Sector is about 29%, exposure into transmission sector is about 22%, exposure into Road sector is about 11% and exposure into other infra sectors including new emerging green sustainable area such electric mobility, sewage treatment is about 9%. In addition, PFS has outstanding loan of about 22% to various state owned distribution companies. Out of total portfolio of Rs.7338 crores, term loan outstanding is Rs.3222 crores for various infrastructure projects and corporate loan to state owned companies is Rs.2903 crores and corporate loan to private sector is Rs.1213 crores.

During the FY 2022-23, with the focused efforts of the management, few loan accounts are on verge of resolution. During the year gross NPAs have decreased from Rs.724 crore to Rs.716 crore and net NPAs have decreased from Rs.387 crore to Rs.306 crore For FY 2022-23, Gross NPA as a % to gross advances was 9.68% and Net NPA as a % to net advances was 4.38% as compared to 8.29% and 4.67% respectively for FY 2021-22.

The Company is continuously focusing on resolving the stress assets and the efforts are on to achieve better efficiency in coming years. Most of the NPA accounts belong to legacy portfolio primarily comprising of Thermal projects. The Company has shifted its focus on other areas including renewable energy because of which the companys exposure to thermal has reduced to 6% in FY 2022-23 in comparison to 30% as at FY 2015-16.

Risk Management

PFSs risk management framework is based on clear understanding of various risks, disciplined risk assessment and measurement procedures and continuous monitoring.

The Board of Directors of PFS has oversight of all risk assumed by PFS with specific committees of the Board constituted to facilitate focussed risk management. There is adequate representation of independent directors in each of these committees. The proceedings and decisions of these Committees are reported to the Board. The policies approved by the Board of Directors or Committees of the Board from time to time constitute the governing framework within which business activities are undertaken.

The hallmark of PFSs Risk Management function is that it is independent of the business sourcing unit with the convergence at MD level.

The key risks that PFS is exposed to in the course of business are Credit Risk, Market Risk, Liquidity Risk and Operational Risk. These risks not only have a bearing on PFSs financial strength and operations but also its reputation.

Credit Risk

PFSs core business is lending, which exposes it to various types of credit risk especially failure in repayments and increase in non-performing loans. PFS measures, monitors and manages credit risk at each borrower and portfolio level. In the last few years, PFS is strengthening its credit risk management framework by adopting Early Warning Signal Framework (EWS Framework) and introducing sector specific credit risk grading framework.

Further, PFS is adhering to RBI mandated prudential norms on provisioning of stressed assets and has adopted approach in taking adequate provisioning thereby preserving the shareholder value. During the year, PFS has worked on the resolution of the stressed assets portfolio and has reduced the quantum of stress assets.

Liquidity Risk

Liquidity Risk is the risk that PFS may not be able to raise fund, meet its short term financial obligation due to an asset liability mismatch or interest rate fluctuation.

PFSs framework for liquidity and interest rate risk management is spelt out in its Asset Liability Management Policy that is implemented, monitored and periodically reviewed by ALCO. ALCO provides guidance for management of liquidity of PFS and the management of interest rate risk within the broad parameters laid down by the Board of Directors/RMC.

Operational Risk

There is a risk of loss resulting from inadequate or failed internal processes, people or systems or from external events. This could include fraud or other misconduct by employees or outsiders, unauthorised transactions by employees and third parties, misreporting or non-reporting with respect to statutory, legal or regulatory reporting and disclosure obligations, operational errors including clerical and record keeping and system failures.

PFS had Operational Risk Management Policy that covers the system of internal controls, systems and procedures to monitor transactions, key back-up procedures and undertakes regular contingency planning.

Policy for Investment of Surplus Funds

The policy of investment of surplus funds i.e. treasury policy provides the framework for managing investment of surplus funds. Realizing that the purpose of mobilization of resources in the Company is to finance equity as well as loans to various infrastructure projects, the prime focus is to deploy surplus funds with a view to ensure that the capital is not eroded and that surplus funds earn optimal returns.

Internal Control Systems & Their Adequacy

The internal control and compliance are ongoing process. The Company has established and further strengthened procedures for an effective internal control. The policies and procedures have been laid down with an objective to provide reasonable assurance that assets of the Company are safeguarded from risks of unauthorised use / disposition and the transactions are recorded and reported with proprietary, accuracy and speed. These aspects are regularly reviewed during internal audit and statutory audit. The Company has also laid down adequate internal financial controls. During the year, such controls were tested and no material weakness in their operating effectiveness was observed, however Company is making continuous efforts for further improvement in its controls. The Finance and Accounts function of the Company is adequately staffed with experienced and qualified personnel. The Audit Committee and Board of Directors review the operational and financial performance of the company at regular intervals.

Human Resources

The Company has committed, loyal, experienced and dedicated team. The Company promotes an atmosphere which encourages learning and informal communication within the organisation. The Company is having Performance Management System to objectively measure the performance of the individual and the organization. The overall remuneration structure is linked with such system. The other required safety norms are being followed throughout the company. Regular employee strength as on 31^st March, 2023 stood at Forty Three (43).

Changes in Key Financial Ratios

The key changes in applicable financial Ratios are as follows:

S. No.	Particulars	2022-23	2021-22	Change in %	Reason of change
1	Debt equity ratio	2.09%	3.14%	-33.44%	Company has prepaid its part borrowing out of cash flow generated from prepayment of its loans by borrowers.
2	Operating profit margin	28.60%	16.59%	72.39%	Operating profit margin improved on account of the reduction in impairment on loan portfolio and increase in spread by 27 bps
3	Net profit	17580.72	12998.48	35.25%	In addition to reduction in impaiment and partially offset by increase in other expense.
4	Return on net worth	7.47%	5.93%	25.97%	On account of above stated reasons, return on net worth improved.