Buy Power Finance Corporation; target Rs 250: Motilal Oswal

“Power Finance Corporation (POWF) reported a PAT of INR11b for 3QFY12, up 68% YoY on the back of higher forex gain to the tune of INR4.2b. Adjusted for forex gain, operating profit and PAT were in-line. NII grew 18.5% YoY and 1.6% QoQ to INR10.9b (v/s our estimate of INR11.3b). Spreads and margins contracted 6bp and 12bp QoQ, respectively, as the cost of funds increased by 5bp QoQ, while yields remained stable. Business growth remained strong, with loans growing 28% YoY and 7% QoQ to INR1.2t. Disbursements grew 36% YoY and 22% QoQ to INR106b. Sanctions continued to decline YoY (down 13% on a high base), but grew 21% QoQ to INR154b. Outstanding sanctions pipeline stood at INR1.82t. Total MTM forex losses booked till 1HFY12 were INR5.8b and POWF reversed INR4.2b during the quarter.”

“POWF mentioned that till 9MFY12, total MTM losses standing on the books are INR10.3b, which will be amortized over the period of the liability. POWF recognized Konaseema project as NPA amounting to INR3.95b. This led to interest reversal of INR190m and provision of INR390m. GNPA stood at 0.54% and NNPA stood at 0.48%. POWF has also declared an interim dividend of INR5/share. We estimate adjusted EPS at INR24 for FY12 and INR29 for FY13, and BV at INR158 for FY12 and INR177 for FY13. During FY12/13, we expect the company to report average adjusted RoA of ~2.7% and average RoE of ~17%. The stock trades at 1.2x FY12E and 1.1x FY13E BV. Maintain Buy, with a price target of INR 250,” says Motilal Oswal research report.

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