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PFC (POWF)
Banks/Financial Institutions
Conference call update. PFC’s management has highlighted various initiatives aimed
at improving financial discipline at state utilities. If implemented effectively, PFC will be
able to retain its steady growth traction. While the market awaits more clarity on the
developments in the sector, near-term stock performance will likely be tampered by
trends in asset quality performance. We reduce estimates by 4-5%, retain ADD rating
with price target of Rs235.
Revising estimates post conference call
We are reducing our estimates for PFC by 4% and 5% for FY2012E and FY2013E, respectively.
We expect PFC to deliver about 20% and 17% loan growth in FY2012E and FY2013E. We are
modeling disbursements growth of 17% and 6% over the next two years. PFC’s current
outstanding approvals (Rs1.7 tn, of which PFC has commenced disbursement for 47% of the
loans) will likely support near-term growth. At our price target (Rs235, Rs250 earlier), PFC will
trade at 1.3X PER and 8.2X PBR FY2013E for 20% PAT CAGR between FY2011 and FY2013E and
RoE of 16-17% in the medium term.
Asset quality performance will be crucial
PFC will now seek a Power Purchase Agreement (PPA) and Fuel Supply Agreement (FSA) for
disbursing loans to generation projects. Further, the PPA should have clauses to pass on any
escalation in fuel prices to the offtaker.
The company has undisbursed approvals of Rs1.7 tn and has already commenced disbursements
for projects having outstanding approvals of Rs810 bn (47% of total approvals). Additionally, PFC
has executed agreements for 15% of the approvals though disbursements are yet to begin.
Management has highlighted that they will insist on an FSA and PPA agreement with automatic
pass-through of input costs while executing documents for the balance 38%. The company
approved loans for projects in Bihar, AP and Tamil Nadu in 1QFY12 - all these projects will require
the aforesaid approvals.
` Further to the concall, we indentify three key stressed assets for PFC. A wind farm in
Maharashtra (with exposure of Rs2.3 bn; this slipped into the NPL category in 4QFY11) will
likely be restructured in the next 1-2 quarters. The management has highlighted that this
project has generated power in 1QFY12 and is now on track.
` A hydel project in MP (exposure of about Rs7 bn); PFC will recognize interest on this project
only on cash basis. A delay in receiving environmental clearances has likely delayed project
commissioning. PFC expects first few units to commence generation before January 2012.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
PFC (POWF)
Banks/Financial Institutions
Conference call update. PFC’s management has highlighted various initiatives aimed
at improving financial discipline at state utilities. If implemented effectively, PFC will be
able to retain its steady growth traction. While the market awaits more clarity on the
developments in the sector, near-term stock performance will likely be tampered by
trends in asset quality performance. We reduce estimates by 4-5%, retain ADD rating
with price target of Rs235.
Revising estimates post conference call
We are reducing our estimates for PFC by 4% and 5% for FY2012E and FY2013E, respectively.
We expect PFC to deliver about 20% and 17% loan growth in FY2012E and FY2013E. We are
modeling disbursements growth of 17% and 6% over the next two years. PFC’s current
outstanding approvals (Rs1.7 tn, of which PFC has commenced disbursement for 47% of the
loans) will likely support near-term growth. At our price target (Rs235, Rs250 earlier), PFC will
trade at 1.3X PER and 8.2X PBR FY2013E for 20% PAT CAGR between FY2011 and FY2013E and
RoE of 16-17% in the medium term.
Asset quality performance will be crucial
PFC will now seek a Power Purchase Agreement (PPA) and Fuel Supply Agreement (FSA) for
disbursing loans to generation projects. Further, the PPA should have clauses to pass on any
escalation in fuel prices to the offtaker.
The company has undisbursed approvals of Rs1.7 tn and has already commenced disbursements
for projects having outstanding approvals of Rs810 bn (47% of total approvals). Additionally, PFC
has executed agreements for 15% of the approvals though disbursements are yet to begin.
Management has highlighted that they will insist on an FSA and PPA agreement with automatic
pass-through of input costs while executing documents for the balance 38%. The company
approved loans for projects in Bihar, AP and Tamil Nadu in 1QFY12 - all these projects will require
the aforesaid approvals.
` Further to the concall, we indentify three key stressed assets for PFC. A wind farm in
Maharashtra (with exposure of Rs2.3 bn; this slipped into the NPL category in 4QFY11) will
likely be restructured in the next 1-2 quarters. The management has highlighted that this
project has generated power in 1QFY12 and is now on track.
` A hydel project in MP (exposure of about Rs7 bn); PFC will recognize interest on this project
only on cash basis. A delay in receiving environmental clearances has likely delayed project
commissioning. PFC expects first few units to commence generation before January 2012.
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