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PFC: ‘Power’ful numbers - Views on News from Equitymaster

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PFC: ‘Power’ful numbers
Jul 17, 2009

Performance summary
  • Net interest income rises by 37% YoY during 1QFY10 on the back of 21% YoY growth in advances.
  • Bottomline expands by 87% YoY aided by exchange rate gains and lower provisioning.
  • Net interest margin improved from 3.8% in 1QFY09 to 4.3% in 1QFY10.
  • Gross NPA to advances remain negligible at 0.02% at the end of 1QFY10.
  • Capital adequacy ratio (CAR) comfortable at 17.5% at the end of 1QFY10.


Standalone numbers
Rs (m) 1QFY09 1QFY10 Change
Interest income 14,395 18,915 31.4%
Interest Expense 9,256 11,876 28.3%
Net Interest Income 5,139 7,039 37.0%
Net interest margin (%) 3.8% 4.3%  
Other Income 21 14 -33.3%
Other Expense 120 129 7.5%
Provisions and contingencies 54 50 -7.4%
Exchange (gain) / loss 576 (631)  
Profit before tax 4,410 7,505 70.2%
Tax 1,447 1,956 35.2%
Profit after tax/ (loss) 2,963 5,549 87.3%
Net profit margin (%) 20.6% 29.3%  
No. of shares (m) 1,147.8 1,147.8  
Book value per share (Rs)*   98.6  
P/BV (x)   2.2  
* Book value as on 30th June 2009

What has driven performance in 1QFY10?
  • The government’s commitment to financing infrastructure projects that was reiterated in the recent Union Budget has paved the way for accelerated growth of the largest power financing institution in the country, PFC. The company being the nodal agency designated by the Government of India for financing power projects in the country grew its loan sanctions to central, state, PPP and private sector by 24% YoY. However, the disbursements were lower by 8% YoY. The difference in sanctions and disbursements is because PFC is a project driven organization. The overall growth in loan book was a healthy 21% YoY, well in line with our estimates. Also due to better pricing power, the net interest margins improved from 3.8% in 1QFY09 to 4.3% in 1QFY10.

    Loan growth on track
    (Rs m) 1QFY09 % of total 1QFY10 % of total Change
    Sanction 151,100   187,820   24.3%
    Disbursements 47,330   43,450   -8.2%
    Loan assets          
    Discipline wise          
    Generation 422,720 77.4% 542,170 82.0% 28.3%
    Transmission 61,620 11.3% 65,780 9.9% 6.8%
    Distribution 33,000 6.0% 35,120 5.3% 6.4%
    Others 28,950 5.3% 18,070 2.7% -37.6%
    Borrower wise          
    Central sector 69,520 12.7% 98,010 14.8% 41.0%
    State sector 411,430 75.3% 475,160 71.9% 15.5%
    Joint sector 25,920 4.7% 49,190 7.4% 89.8%
    Private sector 39,420 7.2% 38,780 5.9% -1.6%
    Total 546,290   661,140   21.0%

  • While generation sector comprised the largest allocation of PFC’s loan book in 1QFY10, the institution is increasingly lending more to PPP (public private partnership / joint) projects.

  • PFC’s other income has dropped by 33% YoY primarily because the company has hived off its consulting business into a separate entity and the lower fee income impacted overall other income growth during 1QFY10.

  • PFC’s gross NPAs also remained negligible at 0.02% while net NPAs are 0.01% of advances in 1QFY10.

What to expect?
At the current price of Rs 215, the stock is trading attractively at a multiple of 1.9 times our estimated FY11 adjusted book value. Given the investment opportunities in infrastructure segment, particularly power, the growth potential for a nodal government agency like PFC is immense given its proximity to the respective Ministries and participation in the policy decisions. The softening of interest rates also reduces the likelihood of bad debts. PFC’s ability to access long term funding, sustain reasonable margins and good asset quality sets it apart from financial institutions in the private sector. We retain our positive view on the stock.

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