CRISIL revises PFC`s fair value to Rs 256

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CRISIL revises PFC`s fair value to Rs 256

CRISIL Research has come out with its report on Power Finance Corporation (PFC). The research firm has maintained a fundamental grade of 4/5 to the company in its February 6, 2012 report.

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CRISIL Research has come out with its report on Power Finance Corporation (PFC). The research firm has maintained a fundamental grade of 4/5 to the company in its February 6, 2012 report.

Power Finance Corporation Ltd's (PFC's) Q3FY12 results were marginally below CRISIL Research's expectations. Net interest income and pre-provision profits remained flat q-o-q. Gross non-performing assets (NPAs) rose because loan to one gas-based power project became non-performing. The company has changed its accounting policy for treatment of forex changes, which resulted in forex gain. The asset quality and sectoral reforms remain key monitorables. We maintain our fundamental grade of 4/5.

Q3FY12 result analysis
• Disbursements increased 21.6% q-o-q (29% y-o-y) leading to a 6.9% q-o-q (28.2% y-o-y) growth in assets under management (AUM) to Rs 1,180 bn. The company has outstanding sanctions of Rs 1,570 bn.

• Net interest income (NII) grew by 1.4% q-o-q (17.3% y-o-y) to Rs 11.2 bn. While yields declined by 1 bps q-o-q to 11.28%, borrowing costs increased 5 bps to 9.13% leading to 5 bps contraction in interest spreads.

• Operating expenses declined 11.8% q-o-q (0.5% y-o-y) due to 27.5% q-o-q decline in other expenses. Pre-provision profits increased 1.6% q-o-q (17% y-o-y).

• Gross NPAs increased to Rs 6.3 bn (0.54% of loan book) as loan to one gas-based power project (Rs 3.9 bn) became NPA. The company has made Rs 390 mn provision and reversed Rs 190 mn of interest income.

• PFC has changed its accounting policy for treatment of forex changes and will amortise the exchange difference on long-term foreign currency loans instead of providing a mark-to-market loss in the profit & loss account. It has reversed the losses booked in previous quarters, which resulted in forex gain of Rs 4.15 bn in this quarter.

• Adjusted profits declined 3% q-o-q (up 7% y-o-y) to Rs 7.9 bn. Adjusted EPS was Rs 5.9, whereas adjusted book value per share was Rs 146.7.

Earnings estimates - revised downwards
We have lowered our FY12 estimates to factor in lower-than-expected other income. We have also increased our provisions for FY12 and FY13 to factor in additional NPAs.

Valuations: Current market price has strong upside
We have used the P/B method to value PFC and have assigned a P/B multiple of 1.5x. Our fair value has been revised from Rs 269 to Rs 256 due to downward revision in adjusted book value per share from Rs 179 to Rs 171. Our valuation grade is 5/5.

To read the full report click on the attachment

Disclaimer: This report (Report) has been commissioned by the Company/Investor/Exchange and prepared by CRISIL. The report is based on data publicly available or from sources considered reliable by CRISIL (Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for any errors or omissions or for the results obtained from the use of Data / Report. Opinions expressed herein are CRISIL's opinions as on the date of this Report.  The Data / Report are subject to change without any prior notice. Nothing in this Report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The Report is not a recommendation to buy / sell or hold any securities of the Company. CRISIL especially states that it has no financial liability, whatsoever, to the subscribers / users of this Report. This Report is for the personal information of the authorized recipient only. This Report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person or published or copied in whole or in part especially outside India, for any purpose.

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