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PFC: Forex losses dampen performance
Jul 28, 2010

Power Finance Corp. (PFC) declared its 1QFY11 results. The institution has reported a 27% YoY and 18% YoY growth in interest income and net profits respectively. Here is our analysis of the results.

Performance summary
  • Net interest income rises by 27% YoY during 1QFY11
  • Bottomline expands by 18% YoY in 1QFY11 aided by higher other income. Excluding the extraordinary impact of the exchange rate losses in this quarter, the bottomline has grown by 46%
  • Net interest margin fell slightly from 4.3% in 1QFY10 to 4.1% in 1QFY11.
  • Net NPA to advances remain negligible at 0.01% at the end of 1QFY11.
  • Capital adequacy ratio (CAR) is a comfortable 17.4% at the end of 1QFY11.


Consolidated numbers
Rs (m) 1QFY10 1QFY11 Change
Income from operations 18,915 24,046 27.1%
Interest expended 11,876 14,896 25.4%
Net Interest Income 7,039 9,150 30.0%
Net interest margin 4.3% 4.1%  
Other Income 14 129 805.3%
Operating expense 171 6 -96.4%
Provisions and contingencies 9 9 -3.4%
Exchange rate (gain) /loss (631) 672  
Profit before tax 7,505 8,593 14.5%
Tax 1,956 2,069  
Effective tax rate 26.1% 24.1%  
Profit after tax/ (loss) 5,549 6,524 17.6%
Net profit margin (%) 29.3% 27.1%  
No. of shares (m) 1,148 1,148  
Book value per share (Rs)*   113.6  
P/BV (x)   2.8  
* (Book value as on 30th June, 2010)

What has driven performance in 1QFY11?
  • The generation sector comprised the largest allocation of PFCs loan book in 1QFY11 (82%). Private sector and PPP (public private partnership / joint) projects enjoyed a higher allocation as compared to 1QFY10. This is keeping in mind the higher contribution of private sector to power projects during the 12th plan. The company reduced its loans to the state governments while increasing contribution from the center.

  • PFC managed to grow its advances by 29% YoY in 1QFY11 despite lower average credit growth in the banking sector. The 87% YoY growth in PFCs disbursements were despite a 23% YoY decline in sanctions. Being the nodal agency designated by the Government of India for financing power projects in the country, PFC managed to grow its asset book in 1QFY11 faster than the growth in infrastructure sector in the past 9 to 12 months. The difference in sanctions and disbursements is because PFC is a project driven organization.

    Balanced growth
    (Rs m) 1QFY10 1QFY11 Change
    Sanctions 187,820 144,280 -23.2%
    Disbursements 43,450 81,280 87.1%
    D / S 23% 56%  
    Advances 662,050 855,970 29.3%
    Sanctions Breakup
    Generation 66% 40%  
    Transmission 22% 22%  
    Distribution 0% 1%  
    APDRP 9% 15%  
    Others 3% 22%  

  • PFCs other income grew by 9 times YoY in 1QFY11 primarily because the company has derived a lumpsum fees on its consulting business for UMPPs (ultra mega power projects). This kind of growth is not sustainable and will remain lumpy in future as well. Further, the institutions UMPP consulting business has now moved to a separate entity PFC Consulting.

  • PFCs gross NPAs also remained negligible at 0.02% while net NPAs are 0.01% of advances in 1QFY11.

What to expect?
At the current price of Rs 319, the stock is trading at a multiple of 2.9 times our estimated FY13 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 company also recently announced that it plans to foray into infrastructure financing to widen the base of its portfolio. It wants to attain the status of an infrastructure financing company (IFC). This move will allow it to tap into tax-free infrastructure bonds and increase exposure limits to individual borrowers. The company is also planning to float subsidiaries for financing consortium lending projects and renewable energy projects. The hardening of interest rates, however, increases the likelihood of bad debts. PFCs ability to access long term funding, sustain reasonable margins and good asset quality sets it apart from financial institutions in the public sector. We retain our positive view on the stock.

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