Invest Your Money In Power Finance Corporation (PFC)

 

Over the last five years, PFC has maintained its growth momentum. Where the top line has grown at the CAGR of 21.05%, the bottom line has grown at the CAGR of 20.44%. Power segment being the main thrust in the 12^th plan and PFC playing a pivotal role in the power segment, the prospect of the stock is quite bright.

 

There are multiple factors working behind the buy call of PFC.

 

1.     Being in power segment and nodal agency for the Government’s ambitious ultra mega power project program, PFC will be playing a crucial role in the coming years. To keep the India growth story intact, the power shortage needs to be narrowed down gradually. In the 12^th Year plan, the planning commission has set a target of adding over 88,000 MW of power generation capacity. Considering the thrust from Government and the crucial role of PFC, the company is expected to see good growth in the topline.

 

2. Consistent rise of both topline and bottomline. -PFC has maintained robust performance over the years. The topline has grown at the CAGR of 21.05% whereas the bottomline has grown at the CAGR of 20.44%. We don’t anticipate any drastic fall in growth rate going forward.

 

 

3.   The stock is available for a very cheap PE of 6.54, where the industry average is 9.23. The closest peer REC is hovering around a PE of 6.84. The net sales of PFC is 13014 crore in comparison to REC’s 10337 crore. The stock is available at the Price/Book value ratio of 1.29

 

4.   Company has good dividend record. In the last financial year, the company has given total 60% dividend (10% final and 50% interim).

 

5.   The NPA of the company is moderate i.e. 0.93% of the total loan amount as on 31-Mar-2012.

 

6.   The net interest income is quite healthy and consistent for PFC. NII rose 25% to 1299 crore in FY2012. PFC’s average NIM 3.89% in the last financial year is quite high in the Industry. One of the major reasons for such high margin is PFC’s capability to raise loan at low interest rate. PFC’s 4950 crore tax-free bond is now open from 14^th December, 2012.

 

7.    PFC is looking into broadening its business activities.  Financing coal mining and gas station projects in India and abroad are part of its expansion plan.

 

Potential Risks :

 

1.     The depreciation of rupee is a major cause of concern for PFC as it has raised money from foreign. With the depreciation of rupee, it needs to shell out more money.

 

2.   PFC has good exposure to state electricity boards and utilities. It increases the risk for PFC as these companies turned out to be defaulter in last few occasions. However, with SEB bailout package from Government and the increase in tariff helped to reduce this risk.

 

Considering both the positive and negative aspects of the stock, the stock can be bought for 6 months to 12 months with a price target of 230-240.

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