Buy Power Finance; tgt of Rs 266: Arihant capital markets

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Buy Power Finance; tgt of Rs 266: Arihant capital markets

Arihant capital markets is bullish on Power Finance Corporation and has recommended buy rating on the stock with a target of Rs 266 in its February 13, 2012 research report.

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Arihant capital markets is bullish on Power Finance Corporation (PFC) and has recommended buy rating on the stock with a target of Rs 266 in its February 13, 2012 research report.

"PFC has reported robust PAT growth of 68% YoY & 164% QoQ on the back of increased income from extra ordinary items that registered 1905% growth on YoY basis. The NII of PFC has grown by 18% YoY; whereas other income has come down by 23% YoY. The operating profits for the firm grew 18% Yoy largely due to controlled operating expenses. On the other hand, provisions have grown up by 550% over the Q3FY12 taking the quantum of provisions to Rs. 39 crore as against Rs. 6 crore primarily on account of drastic increase in NNPA from 0% in Q2FY12 to 0.48% in Q3FY12. Net interest margins reduced to 3.85% from 4.11% in Q3FY11 on the back of reversal of Rs 190 mn interest income from an account that defaulted during the quarter. Interest spreads for the quarter came down to 2.15% from 2.65% in the corresponding quarter previous year on account of increase in cost of funds by 0.65bps YoY. Expect NIMs to remain flat for the upcoming quarters."

"Disbursements for PFC rose by 35% YoY with disbursements to private sector increasing from 9% in Q3FY11 to 19% in Q3FY12 and disbursement to the state sector coming down from 70% in Q3FY11 to 63% to Q3FY12. This indicates PFC's thrust on private sector disbursements to grow its book. Sanctions of PFC have come down from Rs 17800 crore to Rs. 15450 crore in Q3FY11 & Q3FY12 respectively registering de-growth of 13%. This is primarily due to sanctions to the state sector that came down by 5% in Q3FY12. The company remains cautious in terms of loan book expansion. PFC's loan pipeline remains robust & healthy with outstanding sanctions of Rs. 182014 crore. The operating expenses for the quarter remained at same levels as the corresponding quarter last year going with the company's strategy to contain expenses. PFC registered 29 crores of operating costs for the quarter."

"We maintain Buy rating on the stock with the target price of Rs. 266 on account of strong core business growth and decent return ratios. We expect the company to record average return ratios with ROA (adjusted) at 2.5% and ROE (adjusted) at 16% for FY13. However, asset quality deterioration stands imminent in the forthcoming quarters and the movement in provisions is to be watched out for. With reasonable valuations, the stock currently trades at 1.1X FY13E BV," says Arihant capital markets research report. 

Non-Institutions holding more than 90% in Indian cos

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To read the full report click on the attachment