Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Power Finance Corporation Ltd
Underperformance to continue
We initiate coverage on Power Finance Corporation (PFC) with a HOLD rating
and a target price of Rs 265 (1.6x BV and 11x EPS on FY12E). While the
demand environment is likely to remain healthy, we expect loan growth to
moderate from historical levels due to the high base. NIMs too are likely to
come off from peaks, though higher ECB borrowings and tax-free bonds would
provide some support. On the asset front, rising SEB losses are driving up the
risk quotient. While major defaults are unlikely, we note that PFC remains
vulnerable to any shift in investment outlook related to the power sector due to
its single-product profile and concentrated exposure to a few utilities.
While we do not see absolute downside from current levels, we don’t foresee
upside in the medium term either, given the weakening outlook of the power
sector. Moreover, capital issuance could be an overhang. Improvement in SEB
health would be a key positive catalyst for the stock.
Loan book growth to moderate from historical average: We expect disbursals to
remain healthy in the medium term driven by a pick-up in investment in FY12
(being the last fiscal of the 11th five year plan) and a robust outstanding sanction
book of Rs 1.7tn. We are currently factoring in a 17% CAGR in disbursement over
FY11-FY13 (adjusted for APDRP). However, we expect loan growth to moderate to
a 20% CAGR through FY13 (from 22% over FY06-FY11E) due to the higher base.
Asset quality healthy but deteriorating SEB metrics a concern: The company―s
GNPA has remained healthy without any major slippages in the last few years.
But a sharp increase in cash losses for some SEBs (from Rs 65bn in FY07 to
Rs 284bn in FY09) and concerns over the power sector (such as lower PLFs due
to coal availability) are key risks given the concentrated exposure to SEBs and
absence of any buffer on the balance sheet.
NIMs to come off peaks: Reported NIMs have improved from 3.4% in FY07 to
4.1% in 9MFY11 due to asset re-pricing benefits and a sharp decline in
wholesale fund rates in FY09-FY10. Now that wholesale fund rates have risen
and benefits of asset re-pricing are already in the base, we expect incremental
spreads to decline going forward. However, NIMs compression could be limited
to ~7bps in FY12 due to benefit of FPO float.
Prefer PFC over REC: PFC is likely to come out with a follow-on offer of 230mn
shares, of which 172mn comprises a fresh issue. We are factoring in equity
dilution at Rs 250/sh. At current valuations, the stock is trading at a 12% discount
to REC. While we note that REC has a better ROE profile, we prefer PFC due to
the higher proportion of generation projects on its loan book and its leadership
position in the power financing space.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Power Finance Corporation Ltd
Underperformance to continue
We initiate coverage on Power Finance Corporation (PFC) with a HOLD rating
and a target price of Rs 265 (1.6x BV and 11x EPS on FY12E). While the
demand environment is likely to remain healthy, we expect loan growth to
moderate from historical levels due to the high base. NIMs too are likely to
come off from peaks, though higher ECB borrowings and tax-free bonds would
provide some support. On the asset front, rising SEB losses are driving up the
risk quotient. While major defaults are unlikely, we note that PFC remains
vulnerable to any shift in investment outlook related to the power sector due to
its single-product profile and concentrated exposure to a few utilities.
While we do not see absolute downside from current levels, we don’t foresee
upside in the medium term either, given the weakening outlook of the power
sector. Moreover, capital issuance could be an overhang. Improvement in SEB
health would be a key positive catalyst for the stock.
Loan book growth to moderate from historical average: We expect disbursals to
remain healthy in the medium term driven by a pick-up in investment in FY12
(being the last fiscal of the 11th five year plan) and a robust outstanding sanction
book of Rs 1.7tn. We are currently factoring in a 17% CAGR in disbursement over
FY11-FY13 (adjusted for APDRP). However, we expect loan growth to moderate to
a 20% CAGR through FY13 (from 22% over FY06-FY11E) due to the higher base.
Asset quality healthy but deteriorating SEB metrics a concern: The company―s
GNPA has remained healthy without any major slippages in the last few years.
But a sharp increase in cash losses for some SEBs (from Rs 65bn in FY07 to
Rs 284bn in FY09) and concerns over the power sector (such as lower PLFs due
to coal availability) are key risks given the concentrated exposure to SEBs and
absence of any buffer on the balance sheet.
NIMs to come off peaks: Reported NIMs have improved from 3.4% in FY07 to
4.1% in 9MFY11 due to asset re-pricing benefits and a sharp decline in
wholesale fund rates in FY09-FY10. Now that wholesale fund rates have risen
and benefits of asset re-pricing are already in the base, we expect incremental
spreads to decline going forward. However, NIMs compression could be limited
to ~7bps in FY12 due to benefit of FPO float.
Prefer PFC over REC: PFC is likely to come out with a follow-on offer of 230mn
shares, of which 172mn comprises a fresh issue. We are factoring in equity
dilution at Rs 250/sh. At current valuations, the stock is trading at a 12% discount
to REC. While we note that REC has a better ROE profile, we prefer PFC due to
the higher proportion of generation projects on its loan book and its leadership
position in the power financing space.
No comments:
Post a Comment