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Power Finance Corporation
3QFY11 – Steady business growth; maintain Buy
PFC reported 17% yoy rise in net profit, led by strong loan
growth (27% yoy) and a largely stable spread (2.7%). We retain
Buy on PFC as we expect the strong business growth, superior
margin and negligible credit cost to help sustain the high RoA
and RoE of +3% and +20% respectively.
Loans up 27%. The loan book grew 27% yoy to `921bn.
Disbursements grew 20% yoy. A sanction pipeline of over `1.7trn
would drive 25% CAGR in loans over FY10-13e.
Stable spread at 2.7%. Despite tighter liquidity in 3QFY11, cost
of funds declined 10bps qoq to 8.35%, due to large overseas
borrowings (US$240m at 2%; un-hedged), and is likely to remain
below 8.5% in 4QFY11 as PFC plans borrowing US$260m more
in Yuan-denominated currency at coupon rate of ~2%. PFC is
likely to avail refinancing of `10bn from IIFCL in 4QFY11.
Lending yield marginally dropped 8bps to 11.08%. Spread and
NIM remained stable in 3QFY11, at 2.7% and 4.1% respectively.
Higher re-pricing of assets (~`200bn) compared with liabilities
(less than ~`50bn) is likely to protect spread in FY12e.
Strong growth momentum to continue. We expect PFC to
register earnings CAGR of 22% over FY10-13e on the back of
strong loan growth (25%) and stable spread (2.5-2.7%).
Valuation and risks. At our target price of `408/share, PFC
would trade at FY11e and FY12e PBV of 3x and 2.6x respectively.
Risks: Slowdown in power sector investment, regulatory changes
and poor health of SEBs.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Power Finance Corporation
3QFY11 – Steady business growth; maintain Buy
PFC reported 17% yoy rise in net profit, led by strong loan
growth (27% yoy) and a largely stable spread (2.7%). We retain
Buy on PFC as we expect the strong business growth, superior
margin and negligible credit cost to help sustain the high RoA
and RoE of +3% and +20% respectively.
Loans up 27%. The loan book grew 27% yoy to `921bn.
Disbursements grew 20% yoy. A sanction pipeline of over `1.7trn
would drive 25% CAGR in loans over FY10-13e.
Stable spread at 2.7%. Despite tighter liquidity in 3QFY11, cost
of funds declined 10bps qoq to 8.35%, due to large overseas
borrowings (US$240m at 2%; un-hedged), and is likely to remain
below 8.5% in 4QFY11 as PFC plans borrowing US$260m more
in Yuan-denominated currency at coupon rate of ~2%. PFC is
likely to avail refinancing of `10bn from IIFCL in 4QFY11.
Lending yield marginally dropped 8bps to 11.08%. Spread and
NIM remained stable in 3QFY11, at 2.7% and 4.1% respectively.
Higher re-pricing of assets (~`200bn) compared with liabilities
(less than ~`50bn) is likely to protect spread in FY12e.
Strong growth momentum to continue. We expect PFC to
register earnings CAGR of 22% over FY10-13e on the back of
strong loan growth (25%) and stable spread (2.5-2.7%).
Valuation and risks. At our target price of `408/share, PFC
would trade at FY11e and FY12e PBV of 3x and 2.6x respectively.
Risks: Slowdown in power sector investment, regulatory changes
and poor health of SEBs.
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