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India - POWER FINANCE
Staying healthy
We maintain our Outperform call on Power Finance. Loan growth
moderated from 25% in 4QFY11 to 22% in 1QFY12, but fresh sanctions
saw healthy momentum. Asset-quality trends were stable, but we continue
to build in higher stress due to the chunky nature of lending in the sector.
We expect the 18% loan Cagr over FY11-14CL to drive similar growth in
earnings. For FY12, valuation at 1.2x adjusted PB is reasonable, while we
forecast sound profitability with ROA at 2.6% and ROA at 16%.
Still healthy lending momentum. Power Finance’s (POWF IB - Rs187.7
- O-PF) loan growth moderated from 27% in 3QFY11 and 25% in 4QFY11
to 22% YoY in 1QFY12, but approval and disbursal trends indicate that
new projects are still coming up. While loans to the private sector are
growing faster at 39% YoY, state government projects (65% of loans) also
witnessed a healthy 19% expansion. The power-generation segment drove
fresh sanctions, but the transmission and distribution (T&D) segment
continues to face pressure with sanctions down 11% YoY, though the QoQ
uptick appears to be seasonal.
Pipeline is still healthy
Outstanding sanctions as % of loans
Some risk in private sector. PFC reported nonperforming assets (NPA)
in a wind-power project during 4QFY11 that led to an increase in gross
NPA from 0.02% of loans to 0.2% now. While asset quality was stable in
1Q and management expects to restructure its NPA account in 2H, we
believe some projects in the private sector could slip into NPA and also
exacerbate the provisioning pressure on earnings. We retain our estimate
of a gross NPA ratio of 0.5-1% over FY12-14, largely due to slippages in
the private sector, but do not see NPA risk in loans to governmentsponsored projects (92% of loans).
Maintain O-PF. We expect loan growth to moderate from current levels to
18% Cagr over FY11-14 driving support similar growth in profit.
Profitability is healthy and we believe valuations are attractive at 1.2x
FY12 adjusted PB. PFC is a good investment on an improvement in growth
outlook in the power financing sector as it faces lower risk of market-share
loss to banks due to a higher share of generation portfolio. Maintain O-PF
with a target price of Rs250 is based on 1.5x FY13 adjusted PB.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India - POWER FINANCE
Staying healthy
We maintain our Outperform call on Power Finance. Loan growth
moderated from 25% in 4QFY11 to 22% in 1QFY12, but fresh sanctions
saw healthy momentum. Asset-quality trends were stable, but we continue
to build in higher stress due to the chunky nature of lending in the sector.
We expect the 18% loan Cagr over FY11-14CL to drive similar growth in
earnings. For FY12, valuation at 1.2x adjusted PB is reasonable, while we
forecast sound profitability with ROA at 2.6% and ROA at 16%.
Still healthy lending momentum. Power Finance’s (POWF IB - Rs187.7
- O-PF) loan growth moderated from 27% in 3QFY11 and 25% in 4QFY11
to 22% YoY in 1QFY12, but approval and disbursal trends indicate that
new projects are still coming up. While loans to the private sector are
growing faster at 39% YoY, state government projects (65% of loans) also
witnessed a healthy 19% expansion. The power-generation segment drove
fresh sanctions, but the transmission and distribution (T&D) segment
continues to face pressure with sanctions down 11% YoY, though the QoQ
uptick appears to be seasonal.
Pipeline is still healthy
Outstanding sanctions as % of loans
Some risk in private sector. PFC reported nonperforming assets (NPA)
in a wind-power project during 4QFY11 that led to an increase in gross
NPA from 0.02% of loans to 0.2% now. While asset quality was stable in
1Q and management expects to restructure its NPA account in 2H, we
believe some projects in the private sector could slip into NPA and also
exacerbate the provisioning pressure on earnings. We retain our estimate
of a gross NPA ratio of 0.5-1% over FY12-14, largely due to slippages in
the private sector, but do not see NPA risk in loans to governmentsponsored projects (92% of loans).
Maintain O-PF. We expect loan growth to moderate from current levels to
18% Cagr over FY11-14 driving support similar growth in profit.
Profitability is healthy and we believe valuations are attractive at 1.2x
FY12 adjusted PB. PFC is a good investment on an improvement in growth
outlook in the power financing sector as it faces lower risk of market-share
loss to banks due to a higher share of generation portfolio. Maintain O-PF
with a target price of Rs250 is based on 1.5x FY13 adjusted PB.
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