Buy Power Finance Corp; target of Rs 393: Asit C. Mehta
January 22nd, 2011

Asit C. Mehta is bullish on Power Finance Corporation (PFC) and has recommended buy rating on the stock with a target of Rs 393 in its January 18, 2011 research report.

“Power Finance Corporation (PFC)’s disbursements grew by 20% YoY to Rs 78 billion. A large part of disbursement was made to the generation sector. Also the private sector exposure has gone up from 4% in 3QFY10 to 9% in 3QFY11. The company has set a disbursement target of Rs 295 billion for FY11. On the back of strong disbursements, PFC’s net interest income grew by 24% YoY to Rs 9.3 billion. The net profits registered growth of 17% YoY to Rs 6.6 billion during 3QFY11. Its loan assets increased 27% to Rs 921 billion and net non-performing assets (NPAs) were nil. During the 3QFY11, despite the increase in interest rates the company was able to maintain its NIM’s at 4.09% on the back of the low cost funds. In order to meet the capital requirements as an IFC, PFC is expected to raise capital by early FY12.The company has already acquired shareholders approval and the proposal is currently with the cabinet. The company expects to raise 20% inclusive of 15% fresh issue and 5% divestment.”

“PFC has reported strong performance in 3QFY11 driven by strong growth in loan book. Going forward, considering the sanctions outstanding and the FPO, we expect PFC to register strong growth in disbursements. We expect a 26% CAGR in PFC’s loan book from Rs 798 billion in FY10 to Rs 1260 billion in FY12. We expect PFC’s NIM to decline moderately, but it should be able to maintain its target spreads of more than 2%. We expect PFC’s net profit to record a 27% CAGR from Rs 21billion in FY10 to Rs 34 billion in FY12. We maintain our “Buy” recommendation on Power Finance Corporation (PFC) with a target price of Rs 393. (2.5x PBV of Rs 157.1 for FY12E),” says Asit C. Mehta research report.

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