DSIJ Mindshare

Stock Pick From Finance Sector

 

 

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.

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Power Finance Corporation Ltd

BANK ON LARGEST NBFC BY NET WORTH 

HERE IS WHY

Largest NBFC
Specialised financial institution
A consistently profit-making and dividend paying company
 

Incorporated on July 16, 1986, Power Finance Corporation Ltd. is a Schedule-A Navratna CPSE, and is a leading non-banking financial corporation in the country. PFC's registered office is located at New Delhi and regional offices are located at Mumbai and Chennai. PFC vision is to be the leading institutional partner for the power and allied infrastructure sectors in India and overseas across the value chain.

KEY STRENGTHS 

PFC is the largest NBFC by net worth and is a specialised financial institution in power sector. PFC is a dominant player with around 20 per cent market share and is designated as a "Nodal Agency" for development of Integrated Power Development Scheme (IPDS), Ultra Mega Power Projects (UMPPs) and "Bid Process Coordinator" for Independent Transmission Projects (ITPs). An ISO 9001:2015 certified PFC is a consistently profit-making and dividend paying company with strong asset quality. PFC enjoys one of the lowest administrative cost in the industry and boasts of consultancy and advisory services in strategic, financial, regulatory and capacity building skills under one umbrella. 

FINANCIALS 

Power Finance Corporation posted a loss of Rs3400 crore in the fourth quarter of FY17, as the provisions surged in accordance with the RBI norms. Due to the rise in provisions as consequence of shift from abiding by MoP/GoI approved norms to the RBI norms, the company took interest reversals of Rs530 crore and provisions of Rs3430 crore from the income statement. It was followed by a 12.5 per cent hike in GNPAs from Rs23300 crore to Rs30700 crore and Rs360 00 crore increase in restructured advances. 

The company expects upgradation of about 80 per cent of GNPAs in FY18, as these loans include state sector loans with fuel supply and power purchase agreements in place. Further, PFC has done a balance sheet funding in these projects, supported by escrow mechanism. The company expects loans worth Rs18.5 billion to be upgraded by March 2018 in tranches, as the CODs have been received by the company.

There is good loan growth visibility for the company. Approximately 100 per cent of the government sector loans and nearly 20 per cent of private sector loans are consortium loans. 

Various initiatives taken by the current government augurs well for the company. The recent government initiatives are :-
1. 24x7 Power For All (PFA) by 2019
2. Amendment in the tariff policy (January, 2016)
3. “DEEP” (Discovery of Efficient Electricity Price)
4. Ujwal Discom Assurance Yojana (UDAY)
5. Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY) 

The growth visibility in loan book and the benefits that can be derived out of various government schemes make PFC a lucrative BUY.

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