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A tightrope walk
For 1QFY11, PFC reported net profit of Rs6.9bn, up 5% YoY, inline with
our estimates. Loan growth has moderated further to 22%, but the trend
in fresh sanctions and disbursals indicates towards a healthy momentum
in financial closures. Asset quality trends in 1Q were stable, but slippage
in 4Q indicate that chunky nature of loans in the power sector can impact
asset quality adversely; we continue to build some pressure in the private
sector exposures. We expect loan growth to moderate to 18% Cagr over
FY11-14 and EPS growth will be slower at 13% Cagr. Profitability ratios
are healthy at 2.6% ROA and 16% ROE in FY12CL. Maintain O-PF.
Loan growth moderates, but fresh approvals holding-up
While PFC’s loan growth moderated further to 22% YoY (from 25% in 4Q and
27% in 3QFY11), the trend from approvals and disbursals indicates that new
projects are still coming-up. While loans to private sector are growing faster
(39% YoY), state government projects (65% of loans) also witnessed healthy
19% growth. Fresh sanctions were driven by the power generation segment,
but the T&D segment continues to face pressure with sanctions down 11%
YoY; the QoQ uptick appears to be seasonal.
Asset quality pressure in private sector
PFC had reported 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 NPA account to get restructured in
2HFY11, we believe that some projects in private sector could slip into NPA
and also increase the provisioning pressure on earnings. We retain our
estimate of 0.5-1% gross NPA ratio over FY12-14, largely due to slippage in
private sector. We do not see NPA risk in loans to government sponsored
projects (92% of loans). Management highlighted that exposure to merchant
power sector forms just 1-2% of loans.
Growth to moderate, valuations reasonable at 1.2x FY12CL adj PB
We expect loan growth to moderate from current levels to 18% Cagr over
FY11-14 as the impact of recent events and shortage of fuel supply will be
evident with a lag. Pressure on spreads and rise in loan-loss provisioning will
put pressure on core earnings growth- we expect EPS growth of 13% Cagr.
We think valuations will be closer to those of profitable and well capitalised
PSU banks. PFC is a better bet on an improvement in growth outlook in the
power financing sector as it faces lower risk of market share loss to banks
due to higher share of generation portfolio. Valuations are attractive at 1.2x
FY12 adj PB and our 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 �� ��
A tightrope walk
For 1QFY11, PFC reported net profit of Rs6.9bn, up 5% YoY, inline with
our estimates. Loan growth has moderated further to 22%, but the trend
in fresh sanctions and disbursals indicates towards a healthy momentum
in financial closures. Asset quality trends in 1Q were stable, but slippage
in 4Q indicate that chunky nature of loans in the power sector can impact
asset quality adversely; we continue to build some pressure in the private
sector exposures. We expect loan growth to moderate to 18% Cagr over
FY11-14 and EPS growth will be slower at 13% Cagr. Profitability ratios
are healthy at 2.6% ROA and 16% ROE in FY12CL. Maintain O-PF.
Loan growth moderates, but fresh approvals holding-up
While PFC’s loan growth moderated further to 22% YoY (from 25% in 4Q and
27% in 3QFY11), the trend from approvals and disbursals indicates that new
projects are still coming-up. While loans to private sector are growing faster
(39% YoY), state government projects (65% of loans) also witnessed healthy
19% growth. Fresh sanctions were driven by the power generation segment,
but the T&D segment continues to face pressure with sanctions down 11%
YoY; the QoQ uptick appears to be seasonal.
Asset quality pressure in private sector
PFC had reported 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 NPA account to get restructured in
2HFY11, we believe that some projects in private sector could slip into NPA
and also increase the provisioning pressure on earnings. We retain our
estimate of 0.5-1% gross NPA ratio over FY12-14, largely due to slippage in
private sector. We do not see NPA risk in loans to government sponsored
projects (92% of loans). Management highlighted that exposure to merchant
power sector forms just 1-2% of loans.
Growth to moderate, valuations reasonable at 1.2x FY12CL adj PB
We expect loan growth to moderate from current levels to 18% Cagr over
FY11-14 as the impact of recent events and shortage of fuel supply will be
evident with a lag. Pressure on spreads and rise in loan-loss provisioning will
put pressure on core earnings growth- we expect EPS growth of 13% Cagr.
We think valuations will be closer to those of profitable and well capitalised
PSU banks. PFC is a better bet on an improvement in growth outlook in the
power financing sector as it faces lower risk of market share loss to banks
due to higher share of generation portfolio. Valuations are attractive at 1.2x
FY12 adj PB and our target price of Rs250 is based on 1.5x FY13 adjusted PB.
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