Power Finance Corporation Ltd. - GEPL Capital

Q3FY12 –Asset quality concerns emerge

- PFC reported PAT growth of 68.2% Y-o-Y in Q3FY12 on back of write back of provisions done for forex losses, adjusted for this income PAT would have shown growth of just 5.1% Y-o-Y basis in Q3FY12.

- Disbursements have grown 35.8% Y-o-Y and sanctions decreased by 13.2% Y-o-Y in Q3FY12.

- NIM stood at 3.9% in Q3FY12 vs 4.0% in Q2FY12 and 4.1% in Q3FY11. There was reversal of Rs.190 mn interest income from an account that defaulted during the quarter. This impacted NIMs by ~7bps negatively.

- Cost to income ratio stood at 2.7% in Q3FY12 vs 3.0% in Q3FY11 mainly on account of stable operating expenses during the quarter.

- Asset quality deteriorated sequentially as Gross NPA stood at 0.5% in Q3FY12 vs 0.02% in Q2FY12. This led to provisions of Rs.390 mn in Q3FY12 vs nil in Q2FY12.

- CAR stood at 17.92% in Q3FY12.

Result Highlights

Business growth remains strong

Disbursements have grown by 35.8% in Q3FY12 but focus has been towards private players. Disbursement to generation companies has fallen sharply to 45% of total disbursement in Q3FY12 vs 70% in Q3FY11. The company is putting in stringent norms for disbursement like fuel supply agreement should be with the company. This is expected to keep an check on fresh delinquencies. PAT growth supported by reversal of provision in light of AS11 PAT has grown mainly on account of reversal of provision for forex loss. CI ratio improved which also added to profits. Some pressure came from provision on NPAs as there was rise in Gross NPA during the quarter.

GNPA rise due to default from Konaseema

GNPA has moved sharply to 0.5% in Q3FY12 vs 0.02% in Q2FY12 as there was default by a borrower Konaseema to whom the company's exposure stands at Rs.3950 mn. One more project Shree Maheshwar project is the one where some stress is building up. This might move into NPA in Q4FY12.

Valuation & Viewpoint

PFC has performed well on all parameters but concerns on asset quality have emerged. Asset quality remains the key concern and improvement in it can lead to higher valuation for the stock as steps are being taken by government to improve financial conditions of SEBs. At the CMP, the stock is trading at 1.26x and 1.13x Book value of FY12E and FY13E respectively.

Source : Equity Bulls

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