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PFC (POWF)
Banks/Financial Institutions
Lower margins and fees pull down earnings. Power Finance Corporation (PFC)
reported PAT of Rs6.9 bn, up 5% yoy and 1% below estimates. Disbursements, largely
to state-owned generation projects, underpinned 21% loan growth even as yoy decline
in margins and fees pulled down earnings. Gross NPLs moved up marginally to 0.23%
(from 0.02% in December 2010). While operating performance was largely in line with
expectations, we believe that trends in PFC’s asset quality will determine stock
performance. We will revisit our estimates after conference call with the management.
Loan growth on track
PFC reported 21% yoy and 4% qoq loan growth during 1QFY12 even as fears of a sharp
slowdown in the power sector continue to concern the market. Growth rates during 1QFY12 were
in line with PFC’s long-term trends. Disbursements declined by 24% yoy even as approvals
increased by 17% yoy.
Power generation projects had the highest contribution to disbursements at 77%.
About one-fifth of the lending was towards private projects while state utilities continue to
dominate the business.
Notable among the approvals during 1QFY12 were Rs40 bn to a coal-based plant in AP, Rs30
bn to 500MW coal-based plant by Bihar SEB, Rs14 bn to 1,320 MW plant in Tamil Nadu.
NIM below long-term average
PFC reported NII of Rs9.9 bn, up 15% yoy. While loan growth was moderate at 21%, reported
spreads declined to 2.3% (below the long-term guidance of 2.5%). PFC has not published
reported spreads in 4QFY11. Reported asset yields have been stable between 3QFY11 and 1QFY12
even as borrowings cost has increased by 0.45%. Clearly, PFC’s ability to pass on rate hikes to its
customers will determine the trends in its margins. The recent capital issuance and forex
borrowings (which have a low coupon and are largely un-hedged) can boost margins in the near
term though both the items entail other costs.
PFC’s 1QFY12 NIM (as per KS estimates) was 3.9% down from 4.1% in 1QFY11. This was above
NIM of 3.45% in 4QFY11. We note that one-off items viz. expenses for foreign currency debt
issuance, interest reversal and provision for NPL, tampered estimated NIM for 4QFY11; adjusted
for these, NIM for 4QFY11 works out to 4.1%.
PFC raised forex loans equivalent to US$260 mn in February 2011. Foreign currency liabilities
are about 5% of its overall borrowings; about 10% of these loans are hedged for forex
currency. Volatility on the forex account remains a risk to our earnings.
Lower fees on a high base
PFC reported fees of Rs350 mn as compared to Rs650 mn in 1QFY11. Bunching up of fees
from APDRP II in the previous quarter had inflated the base.
Trends in asset quality performance crucial for stock performance
PFC’s reported gross NPLs increased to Rs2.38 bn (0.23%) in March 2011 as compared to
Rs13 mn (0.02%) in December 2011 likely due to a slippages in 4QFY11. In the backdrop of
fears in asset quality performance of PFC, given the poor financial health of state utilities
and multiple challenges faced by private power producers, the Street will continue to
minutely monitor the trends in asset quality.
We note that PFC has approved projects in Tamil Nadu, Jharkhand, Haryana (among other
states) during the quarter. We would like to get more information from the management on
the risk management strategy followed by the company in regard to these loans.
Capital adequacy comfortable
PFC reported Tier-I CAR of 18.9%, up from 15.7% in March 2012. Recent capital issuance
has boosted its capital adequacy and will likely support long-term growth.
Projects in Tamil Nadu, Jharkhand approved recently
Projects approved by PFC in 1QFY12
Name of project Loan (Rs bn) Size (MW)
Coal-based TPP of Singareni Collieries in AP 3.98 1200
TPS of Bihar State Electricity Board 2.898 500
TPS of NSL Nagapatnam Powerand Infratech in TamilNadu 1.4 1320
Essar Power in Jharkhand 1.0 1200
Coal-based TPP of Aravali Power Company,.Haryana 0.832 1500
Establishment of 400/200KV substation in Maharashtra 0.546
Transmission works inv AP 0.5
Source: Company
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
PFC (POWF)
Banks/Financial Institutions
Lower margins and fees pull down earnings. Power Finance Corporation (PFC)
reported PAT of Rs6.9 bn, up 5% yoy and 1% below estimates. Disbursements, largely
to state-owned generation projects, underpinned 21% loan growth even as yoy decline
in margins and fees pulled down earnings. Gross NPLs moved up marginally to 0.23%
(from 0.02% in December 2010). While operating performance was largely in line with
expectations, we believe that trends in PFC’s asset quality will determine stock
performance. We will revisit our estimates after conference call with the management.
Loan growth on track
PFC reported 21% yoy and 4% qoq loan growth during 1QFY12 even as fears of a sharp
slowdown in the power sector continue to concern the market. Growth rates during 1QFY12 were
in line with PFC’s long-term trends. Disbursements declined by 24% yoy even as approvals
increased by 17% yoy.
Power generation projects had the highest contribution to disbursements at 77%.
About one-fifth of the lending was towards private projects while state utilities continue to
dominate the business.
Notable among the approvals during 1QFY12 were Rs40 bn to a coal-based plant in AP, Rs30
bn to 500MW coal-based plant by Bihar SEB, Rs14 bn to 1,320 MW plant in Tamil Nadu.
NIM below long-term average
PFC reported NII of Rs9.9 bn, up 15% yoy. While loan growth was moderate at 21%, reported
spreads declined to 2.3% (below the long-term guidance of 2.5%). PFC has not published
reported spreads in 4QFY11. Reported asset yields have been stable between 3QFY11 and 1QFY12
even as borrowings cost has increased by 0.45%. Clearly, PFC’s ability to pass on rate hikes to its
customers will determine the trends in its margins. The recent capital issuance and forex
borrowings (which have a low coupon and are largely un-hedged) can boost margins in the near
term though both the items entail other costs.
PFC’s 1QFY12 NIM (as per KS estimates) was 3.9% down from 4.1% in 1QFY11. This was above
NIM of 3.45% in 4QFY11. We note that one-off items viz. expenses for foreign currency debt
issuance, interest reversal and provision for NPL, tampered estimated NIM for 4QFY11; adjusted
for these, NIM for 4QFY11 works out to 4.1%.
PFC raised forex loans equivalent to US$260 mn in February 2011. Foreign currency liabilities
are about 5% of its overall borrowings; about 10% of these loans are hedged for forex
currency. Volatility on the forex account remains a risk to our earnings.
Lower fees on a high base
PFC reported fees of Rs350 mn as compared to Rs650 mn in 1QFY11. Bunching up of fees
from APDRP II in the previous quarter had inflated the base.
Trends in asset quality performance crucial for stock performance
PFC’s reported gross NPLs increased to Rs2.38 bn (0.23%) in March 2011 as compared to
Rs13 mn (0.02%) in December 2011 likely due to a slippages in 4QFY11. In the backdrop of
fears in asset quality performance of PFC, given the poor financial health of state utilities
and multiple challenges faced by private power producers, the Street will continue to
minutely monitor the trends in asset quality.
We note that PFC has approved projects in Tamil Nadu, Jharkhand, Haryana (among other
states) during the quarter. We would like to get more information from the management on
the risk management strategy followed by the company in regard to these loans.
Capital adequacy comfortable
PFC reported Tier-I CAR of 18.9%, up from 15.7% in March 2012. Recent capital issuance
has boosted its capital adequacy and will likely support long-term growth.
Projects in Tamil Nadu, Jharkhand approved recently
Projects approved by PFC in 1QFY12
Name of project Loan (Rs bn) Size (MW)
Coal-based TPP of Singareni Collieries in AP 3.98 1200
TPS of Bihar State Electricity Board 2.898 500
TPS of NSL Nagapatnam Powerand Infratech in TamilNadu 1.4 1320
Essar Power in Jharkhand 1.0 1200
Coal-based TPP of Aravali Power Company,.Haryana 0.832 1500
Establishment of 400/200KV substation in Maharashtra 0.546
Transmission works inv AP 0.5
Source: Company
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