Shares of Power Finance Corporation Ltd (PFC) climbed 9 per cent in Monday's trade, as Q2 earnings were a beat on analyst estimates, led by dividend income and write-backs. Analysts said the 10 per cent loan growth, which was disappointing given seasonality and BCG-led system rejig, is not perturbing as disbursements are back in the reckoning and sanctions pipeline is strengthened across power and non-power categories.
The 14 per cent annual growth expectation on a high base, heavy-duty resolutions followed by sizeable write-backs and the PFC valuation at 1 times FY27 P/ABV make for a strong bull case, said Elara Securities.
"This with attractive P/ABV (post deduction of investment value in subsidiary and holdco discount) positions POWF higher than any other bank and NBFC. Reiterate BUY. We tweak core book multiple to 1.6x P/ABV (earlier 1.5 times) as we roll over forward to FY27E to arrive at target price of Ts 569 (unchanged)," it said.
The stock climbed 8.82 per cent to hit a high of Rs 489.10 on BSE. PFC shares are up 22 per cent this calendar and Elara's target price suggests a further 16 per cent upside on the counter over the prevailing price.
CLSA maintained 'Outperform' on the stock with a target price of Rs 610. Bernstein also has 'Outperform' on the PSU stock with a target of Rs 620.
Elara said a downward rate cycle may not prop NIM, given lagged asset repricing - determined by funding costs, with three year/one-year reset and that the fact that 70 per cent liabilities are fixed with 30 per cent bank borrowings linked to MCLR.
"That said, strong disbursement uptick, effective liability management (18 per cent borrowings priced at 6.3 per cent) to prop margin, which can surpass 3.5 per cent-plus in FY25E-27E," it said.
Elatab said the BCG-led system rejig marred H1 business trajectory, with Q2 loan growth at 10 per cent YoY. The seasonally tepid period saw slower growth in core thermal (flat QoQ) and distribution (up 5 per cent QoQ), compensated by healthy traction in renewables and non-power.
"That said, disbursements are back in reckoning at Rs 46,600 crore that more than doubled QoQ, which with robust sanction pipeline of Rs 16,000 crore tilting to core power assets (60 per cent generation, 17 per cent distribution, 15 per cent transmission sanctions) have paved way for healthier growth prospects. We maintain 14 per cent growth CAGR in FY24-27E," Elara said.