Power Finance Corporation (Buy, Target Rs 225)
Ø PFC is the largest power financier in India with an asset base of Rs120bn has been at the receiving end of policy paralysis in the power generation space as coal shortage along with the deterioration in the financial health of SEB’s put pressure on its asset quality.
Ø However the recent round of tariff hikes by SEB’s augurs well for PFC since it sanctions funds to state utilities for funding their cash flow mismatches. Implementation of power sector reforms in our view could act as a key trigger for PFC going forward as it is now operating in a declining interest rate environment ( PFC depends on wholesale borrowings to fund asset growth)
Ø PFC with sustainable ROE of 16% trades at adjusted book on a one-year forward basis and can easily sustain NIM’s of 3.8%. We recommend a BUY on PFC with a 3 month price target of Rs225
TECHNICAL VIEW
Ø The stock has come out of a more than 1 year of downtrend. The current chart pattern exhibits the formation of a Triangle formation.
Ø With the stock taking strong support at the rising support trendline, it is on the verge of breaking the upper resistance line.
Ø Once the stock manages to surpass the minor resistance at 210 levels, technically the breakout would become successful and the stock could continue trending higher.
Thanks and Regards
LKP Advisory
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