Power Fi­nance Cor­po­ra­tion Ltd: Pow­er­ing gains

Money Times - - Stock Buzz/Expert Eye - By Vi­hari

(BSE Code: 532810) (CMP: Rs.78.60) (FV: Rs.10)

In­cor­po­rated in 1986, New Delhi based Power Fi­nance Cor­po­ra­tion Ltd (PFC) is a fi­nan­cial in­sti­tu­tion (FI) that fi­nances the power sec­tor with an aim to in­te­grate and de­velop power and its as­so­ci­ated sec­tors. It is reg­is­tered as a Non­Bank­ing Fi­nance Com­pany (NBFC) with the RBI and is a Sched­ule-A Navratna CPSE un­der the ad­min­is­tra­tive con­trol of the Min­istry of Power (MoP).

PFC was in­cor­po­rated with the ob­jec­tive to pro­vide fi­nan­cial re­sources and en­cour­age the flow of in­vest­ments to the power and as­so­ci­ated sec­tors, to work as a cat­a­lyst to bring about in­sti­tu­tional im­prove­ments in stream­lin­ing the func­tions of its bor­row­ers in fi­nan­cial, tech­ni­cal and man­age­rial ar­eas to en­sure op­ti­mum utiliza­tion of avail­able re­sources and to mo­bi­lize var­i­ous re­sources from do­mes­tic and in­ter­na­tional sources at com­pet­i­tive rates. PFC is a dom­i­nant player in the NBFC space with a mar­ket share of ~20%. Its prod­uct port­fo­lio com­prises fi­nan­cial prod­ucts and ser­vices like project term loans, equip­ment lease fi­nanc­ing, dis­count­ing of bills, short-term loans, con­sul­tancy ser­vices, etc. for var­i­ous power projects in Gen­er­a­tion, Trans­mis­sion and Dis­tri­bu­tion seg­ments as well as for ren­o­va­tion and mod­ern­iza­tion of ex­ist­ing power projects.

PFC has been des­ig­nated as the nodal agency by MoP for de­vel­op­ment of Ul­tra Mega

Power Projects (UMPPs), with a ca­pac­ity of at least 3,500 MW each un­der the tar­iff­based com­pet­i­tive bid­ding route. MoP is the ‘fa­cil­i­ta­tor’ for the de­vel­op­ment of these

UMPPs while Cen­tral Elec­tric­ity Author­ity

(CEA) is the ‘Tech­ni­cal Part­ner’. Be­ing large in size, these projects will meet the power needs of the coun­try through trans­mis­sion of power through re­gional and na­tional grids.

For FY18, PFC re­ported 175% higher PAT of Rs.5855.22 crore on 2% lower sales of Rs.26414.47 crore with an EPS of Rs.22.18 and a div­i­dend of 78% was paid. Dur­ing Q1FY19, it re­ported 22% higher PAT of Rs.1373.26 crore on 4% higher sales of Rs.7052.05 crore with an EPS of Rs.5.2. Its cap­i­tal ad­e­quacy ra­tio (CAR) stood at 20% while net NPA (non-per­form­ing as­sets) ra­tio stood at 7.6% v/s 10.6% in Q1FY18. The man­age­ment is ex­pected to main­tain the div­i­dend pay­out ra­tio of 30% go­ing for­ward.

PFC’s loan as­set book grew 14% to Rs.279000 crore as at FY18, of which the gov­ern­ment sec­tor ac­counts for ~82% while the pri­vate sec­tor ac­counts for the bal­ance

~18%. The man­age­ment does not see any stress in its gov­ern­ment sec­tor loan book. Of the Rs.51000 crore pri­vate sec­tor loan book, ~Rs.20000 crore (i.e. 7% of the over­all loan book) is reg­u­lar which means that ~89% of the loan book does not show any stress.

PFC recorded the strong high­est ever dis­burse­ments of Rs.64400 crore in FY18 with 100% growth to Rs.13750 crore in re­fi­nanc­ing and a 260% surge to Rs.9000 crore in dis­burse­ments to the re­new­able power sec­tor. The man­age­ment tar­gets 10-15% loan growth for FY19.

PFC is fo­cused on di­ver­si­fy­ing its bor­row­ing pro­file. It has com­pleted $800 mil­lion of a syn­di­cated loan deal, $400 mil­lion of green bonds is­suance and $460 mil­lion of FNCR (for­eign cur­rency non-repa­tri­able) bond is­suance. It also sealed a Rs.50000 mil­lion struc­tured debt deal with LIC.

NPAs re­duced to 7.4% in FY18 from 10.6% in FY17. Ex­clud­ing the im­pact of the RBI cir­cu­lar is­sued in Fe­bru­ary 2018 which re­vised the NPA recog­ni­tion and res­o­lu­tion frame­work, gross NPA and net NPA ra­tios have ac­tu­ally de­clined to

5.28% and 3.52% re­spec­tively in FY18. Dur­ing the year, its ex­po­sure to state sec­tor was 66%; cen­tral gov­ern­ment 10%; joint sec­tor 12%; and pri­vate sec­tor 12%.

With an eq­uity cap­i­tal of Rs.2640 crore and re­serves of Rs.37561.66 crore, PFC’s con­sol­i­dated share book value works out to Rs.151. Dur­ing FY16, PFC had is­sued a 1:1 bonus. Cur­rently, the Pres­i­dent of In­dia (gov­ern­ment) holds 65.1% of the eq­uity cap­i­tal, FIIs hold 11.8%, do­mes­tic FIs, Mu­tual Funds and Banks to­gether hold 15.1% and PCBs hold 1.3%, which leaves 6.2% stake with the in­vest­ing pub­lic. Ac­cord­ing to the Plan­ning Com­mis­sion es­ti­mates, PFC is ex­pected to fund size­able worth of power projects go­ing for­ward. Apart from the high de­mand for credit, PFC’s ac­cess to Sec­tion 54EC bonds and tax-free bonds for low-cost fund­ing may help it main­tain its mar­gins. More­over, with a sta­ble gov­ern­ment at the Cen­tre, in­fra bot­tle­necks are ex­pected to be elim­i­nated, which will be pos­i­tive for its growth and as­set qual­ity. Thrust in ru­ral elec­tri­fi­ca­tion, re­new­able en­ergy and de­cen­tral­ized dis­trib­uted gen­er­a­tion (DDG) will in­ter-alia en­hance the pen­e­tra­tion of elec­tric­ity in the coun­try, which will drive the de­mand fur­ther. With timely in­ter­ven­tions by the gov­ern­ment in ad­dress­ing the nag­ging is­sues af­fect­ing the power in­dus­try, the out­look for the sec­tor is quite op­ti­mistic with am­ple mar­ket op­por­tu­ni­ties avail­able for fi­nan­cial prod­ucts. Thus, the prospects for PFC are quite promis­ing go­ing for­ward.

The Na­tional Elec­tric­ity Fund (an in­ter­est sub­sidy scheme) will be a po­ten­tial source of in­come in fu­ture. Es­ti­mated ag­gre­gate ca­pac­ity ad­di­tion of 180 GW dur­ing the XII and XIII Five Year Plans put to­gether (FY13-22) at an es­ti­mated in­vest­ment of over Rs.34 lakh crore will con­tinue to drive the prospects of the power sec­tor in the coun­try. The PFC share is rec­om­mended in view of the re­cent ini­tia­tives that have boosted hopes of ac­cel­er­ated re­forms in the power sec­tor. These in­clude the fi­nan­cial re­struc­tur­ing pack­age of SEBs (state elec­tric­ity board), in­creased mo­men­tum in the sign­ing of fuel sup­ply agree­ments by Coal In­dia and ex­pec­ta­tion of fur­ther tar­iff hikes by state power dis­tri­bu­tion com­pa­nies (many state boards have hiked tar­iffs in the last 12-18 months). This should drive the in­vest­ment cy­cle and aid loan growth for lenders such as PFC next year.

PFC plans to har­ness all re­sources to cap­ture the op­ti­mal share of the fund­ing busi­ness of the es­ti­mated debt re­quire­ment of the power sec­tor. The stock is likely to notch an EPS of Rs.24 in FY19. At the CMP of Rs.78.60, the stock trades at a P/E of just 3x on FY19E EPS. A rea­son­able P/E of 5x will take its share price to Rs.120+ in the medium-term. The stock’s 52-week high/low is Rs.149.3/67.6.

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