Emkay Global Financial has given Buy recommendation for Power Finance Corporation with a target price of Rs. 220 in its research report issued on Aug 13, 2021

Emkay Global Financial’s report on Power Finance Corporation

PFC reported healthy trends in profitability, with PAT of Rs22.7bn (+33.8% yoy, -2.3% qoq), driven by improvement in margins (~381bps) and credit costs (~49bps vs. ~86bps last quarter). However, disbursements remained weak at Rs113.3bn (-45.4% yoy, -18.2% qoq), mainly due to weak demand across segments. Asset-quality trends were encouraging, as out of the total Stage-3 assets of Rs211.5bn for 26 projects, 16 projects worth Rs158.2bn are already admitted under the NCLT with ~69% provision coverage, while 10 projects worth Rs53.3bn with 54% coverage are being pursued outside the NCLT. Overall coverage improved to ~65% from ~63% last quarter. Yields are re-prized at lower rates from Apr’21 to improve competitiveness among lenders. Hedging of ~86% of forex loans (maturing up to 5 years) also provides comfort over volatile forex losses. Aatmanirbhar plans for SEB may support near-term disbursements; however, finding new growth avenues – amid weak thermal power additions – is a necessity.

Outlook

We continue to like the company based on improving asset-quality trends and an attractive risk-reward. Maintain Buy and roll forward to Sept’22E with a revised TP of Rs220 (Rs215 earlier), corresponding to ~1x P/Adj. Sept’23E book. We are increasing the dividend payout estimate to ~45% by FY24E, based on revised guidelines from the RBI.

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