Power Finance Corporation - Cheap valuations factor in concerns - Angel Broking

Power sector reforms to benefit PFC

Loan book mix of PFC comprises of loans to state sector (69%), central sector (8%), joint sector (6%) and private sector (17%). Power sector is facing issues like poor health of state electricity boards (SEB) and availability of fuel. On the fuel front, Government has taken steps such as auctioning of coal mines and stepping up of coal production which would gradually improve the situation. Also in our view, government will not let SEB to become NPA as it is a quasi government debt and expect them to step in as in previous SEB packages.

Visibility on Credit growth

Outstanding sanctions stand at Rs1.4lakhcr, which is 3.2x of disbursement done during FY15. This provides loan growth visibility in the next few years. PFC is well capitalized with Tier I ratio at 17.6%, which would enable the company to grow without diluting equity.

Attractive valuations

At the offer-for-sale (OFS) price of Rs. 254, the stock is trading at 0.77x the consensus FY2017E per book value of Rs. 329. Considering the 5% discount (Rs. 241) for retail investors, the stock is available at a P/B ratio of 0.73x consensus FY2017E book, which is attractive. With healthy ROE at 20%, stock is trading cheap with P/E at 6.1x FY2015 earnings. Hence, we recommend investors to subscribe for PFC OFS at the cut-off price.

Shares of POWER FINANCE CORPORATION LTD. was last trading in BSE at Rs.245.45 as compared to the previous close of Rs. 254.05. The total number of shares traded during the day was 1533036 in over 10262 trades.

The stock hit an intraday high of Rs. 252.8 and intraday low of 244.75. The net turnover during the day was Rs. 379847175.

Source : Equity Bulls

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