Buy Power Finance Corp; target Rs 207: Unicon Investment

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Buy Power Finance Corp; target Rs 207: Unicon Investment

Unicon Investment is bullish on Power Finance Corp (PFC) and has recommended buy rating on the stock with a target price of Rs 207 in its November 19, 2011 research report.

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Unicon Investment is bullish on Power Finance Corp (PFC) and has recommended buy rating on the stock with a target price of Rs 207 in its November 19, 2011 research report.

"Power Finance Corp (PFC) reported 40% decline in profits to INR 4190 Mn, due to mark to market loss of INR 5200 Mn on its foreign currency borrowings. Business continues to grow steadily as Advances grew by 26% YoY and 6% QoQ. Generation segment contributed ~84% of the total loan book remaining largest contributor. The state and central sector combined contributed 83% of the loan book. Disbursements increased by 37% YoY and 39% QoQ, largely driven by generation projects and other short-term loans. The NIM improved by 12 bps sequentially to 3.97% aided by a hike in lending rates and leveraging of FPO funds. The yield on assets increased by 21 bps QoQ and cost of funds by 28 bps QoQ. The asset quality remained stable sequentially with GNPAs and NNPAs at 0.22% and 0.19% in line with that of the previous quarter. Provision coverage ratio stood at 13% and PFC has not made any provisions on standard assets. However, the company holds cumulative bad and doubtful debt provisions of ~INR 10 Bn (~1% of the loan book)."

"Borrowings increased by 5.3% QoQ led by a 12.6% QoQ increase in bonds. Foreign currency loans also increased by 11.6%, while rupee denominated loans grew 4.9% QoQ. However, term loans and short term loans declined by 5.2% and 58.1% QoQ respectively. Management has guided borrowing target for the current fiscal to stands at INR 300 bn of this INR 50 bn and INR 70 bn will be raised by tax free bonds and infrastructure bonds respectively. On the matter of coal availability the management has stated projects with operation date of Mar'09 has no problem, but for projects post Apr'11 will have to do power purchase agreements and fuel supply agreements. In terms, of mounting losses of SEBs banks have becoming stricter about funding to them. This has resulted in several SEBs raising tariffs; additionally the government too is suggesting measures to improve the financial health of SEBs."

"Concerns relating to SEBs financial health seem to be overdone and we expect PFC to recover their dues in medium term. With more exposure to generation companies PFC is likely to maintain healthy asset quality. Also, management has guided to raise ECB of USD 1 Bn before March '12, which will have a positive impact on cost of borrowing. At the CMP PFC trades at 0.9x its FY13E BV. We have Buy rating on the stock with a price target of INR 207," says Unicon Investment research report.

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To read the full report click on the attachment