PFC- Loan growth remains strong. : Kotak Sec

Visit http://indiaer.blogspot.com/ for complete details �� ��


PFC (POWF)
Banks/Financial Institutions
Loan growth remains strong. PFC reported 2QFY11 PAT of Rs7 bn, up 10% yoy and
1% above estimates. Key highlights—loan growth strong at 28% (significantly above
22% CAGR between FY2007 and FY2010), margins stable qoq. Forex gains and fees
from APDRP aggregating to Rs1 bn supported earnings from lending business. We are
revising our estimates to factor somewhat better NIM and lower operating expenses.
Retain SELL with price target of Rs325.




Loan growth strong
PFC reported PBT growth of 26% yoy primarily on the back of 28% loan growth. A higher growth
in tax liability in 2QFY11 (due to tax credit availed in 2QFY10) pulled down reported PAT growth
to 10%. After delivering 22% loan book CAGR between 2007 and 2010, PFC has retained 28%
loan growth traction for the last two quarters despite a higher base. Disbursements were up 39%
yoy, approvals also increased by 80% yoy. We are modeling about 27% loan growth for PFC over
the next three years.
􀁠 Visibility on loan pipeline remains strong—PFC has outstanding (undisbursed) approvals of
Rs1.6 tn of which it has already executed documents for proposals of Rs1.05 tn (i.e. 1.2X
current loan book).
􀁠 Lending to generation projects will continue to dominate PFC’s business—about 74% of its
outstanding approvals are towards generation projects, somewhat lower than 83% share in its
current loan book.
􀁠 The share of private sector will clearly increase over time—about 23% of its outstanding
approvals are driven by private players as compared to 7% share in the current loan book.

Margins remain stable qoq
PFC reported NIM of 4.1% in line with 1QFY11 but marginally below 2QFY10. Reported spreads
were stable at 2.7% qoq. We are factoring a moderate margin decline (15-20 bps in the near
term). PFC’s negotiating power with state utilities and high (74%) share of variable rate assets
(that are re-priced every three years) will likely cushion spreads. A higher-than-expected decline in
spreads because of increase in competition and higher share of private sector business will provide
downside risk to our estimates.

PFC to raise equity capital by FY2012E
PFC proposes to raise equity capital by FY2012E; the proposal is approved by its shareholders and
currently with the Ministry of Power.