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UBS Investment Research
Power Finance
Stable quarter
Profits slightly above UBS estimates
Power Finance corporation (PFC) reported a net profit of Rs 7bn (+10% y/y) in
2QFY11, slightly ahead of UBS-e of Rs 6.8bn primarily due to forex gains on
borrowings of Rs 515mn. Net interest income stood at Rs8.9 bn (+24% y/y). The
company posted a loan growth of Rs 879bn (+28% y/y) ahead of UBS-e of +25%.
Other income declined 13% Y/Y due to low interest on tax refund.
Better than expected loan growth; up 28% y/y
Loans grew to Rs 879bn (+28% y/y) while Disbursements for the quarter stood at
63bn which was -22% q/q). Given the strong sanctions during the quarter (Rs
297bn in Q2 (+ 84% y/y and +106% q/q) we expect disbursements to pick up in
second half and expect 25% loan growth in FY11. Net outstanding sanctions for
the quarter stood at Rs 1,637bn (1.9x of current loan book)
Stable NIMs and spreads; high tax rate
PFC reported net interest margin of 4.08% (down 1bp) with spreads at 2.7% (down
5bps); spreads would have been higher by 10 bps q/q adjusted for one offs. The
cost of funds for the quarter increased to 8.45% (+17 bps q/q). Tax rate for the
quarter including extraordinary item rose to 27% (+3% q/q); due to lack of tax
refunds. CAR stood at 17.4% at the end of 2Q.
Valuation: PT 450, Maintain Buy
Our FY11/12/13 estimates are largely unchanged. We maintain our price target at
Rs 450 and maintain BUY rating. We derive our PT based on residual income
model. We are building in dilution of 15% which we expect in Q4.
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