Buy Power Finance Corp; target of Rs 135: Axis Direct

Axis Direct's research report onPower Finance Corp

PFC reported a disappointing P&L performance with Q3 PAT at Rs 16 bn (down 17.7% YoY; our est. Rs 18.6 bn), primarily led by sharp decline in NIM (down 35 bps QoQ at 3.85%). Write-back in provisions and lower taxes supported the PAT to some extent. Loan growth at 10% YoY was primarily driven by distribution segment.

Outlook

Maintain BUY with rolled forward TP of Rs 135 (1x FY20E ABV): Management's optimism on improvement in asset quality, by upgrades, is gradually playing out; however, we remain watchful on the same. The stock can see significant delta on ABV based on upgrades from the NPAs. Moreover, improving loan growth and maintaining margin remains a key challenge. We cut our FY19 estimates by 9% factoring in lower margins.

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