The shares of this PSU stock in the power sector gained nearly 6% after the company announced robust Q1 results, followed by a brokerage’s strong projection of a 27% upside.
On Wednesday, Power Finance Corporation Ltd. shares were trading at ₹488.80 per share, up 2.86 percent on the National Stock Exchange. The company has a market capitalization of ₹ 1,61,705 crore.
About the company:
Power Finance Corporation (PFC) is a Maharatna category. The PFC is a financial organization that specializes in power sector finance, offering financial support to power projects in India such as power generation, transmission, and distribution.
Power Finance Corporation Ltd’s shares have climbed by 4% over the past six months and by an impressive 130% over the past year.
Recommendation:
Global brokerage, CLSA has initiated a ‘outperforming’ rating on Power Finance Corporation Ltd. with a target price of ₹620 per share, representing an upside potential of up to 27% from Wednesday’s price of ₹488.80 apiece.
CLSA maintained an ‘Outperform’ rating on PFC, noting that the company’s first-quarter net profit increased by 24% year-on-year and surpassed their estimates by 5%, mainly due to forex gains.
In the June quarter, PFC’s net interest income (NII) rose by 23.5% to ₹4,328 crore, compared to ₹3,503.3 crore in the same quarter last year.
Additionally, the company’s total income grew to ₹24,736.68 crore from ₹21,017.81 crore in the corresponding period a year ago.
Rationale:
The brokerage firm pointed out that PFC’s loan growth was slow at 10% year-on-year. The management mentioned that the company is currently undergoing transformation projects, which are expected to stabilize soon.
The growth guidance for FY25 remains steady at 12-15%. Concerning asset quality, the company did not experience any new NPA formation or resolutions in the first quarter. However, one state utility slipped to Stage 2, causing a slight increase in provision coverage quarter-over-quarter, as mentioned by CLSA.
Elara Capital has issued a buy target of ₹569 per share. However, Elara Capital analysts expect a slight near-term decrease in the stock multiple for PFC due to concerns over exposure to a controversial developer group and growth momentum slowing to below 14%.
“But this may be offset by steady net interest margin (NIM) and lower credit costs, as significant account resolutions and effective funding cost management are underway. So, while we account for these overhangs in our estimates, we still expect a healthy 2.8% return on assets (RoA) and 17% return on equity (RoE) in FY24-26E,” Elara Capital analysts mentioned.
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Financials:
From FY23 to FY24, the company saw a substantial 18% revenue increase, growing from ₹77,684 crores to ₹91,508 crores. During this time, net profit surged by 25%, rising from ₹21,179 crores to ₹26,461 crores.
Written by Omkar Chitnis
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