Power Finance Corporation (PFC) reported Q4FY19 PAT of `21.2 billion supported by sustained revenue traction (stable NIM) and a provisioning write-back (accounting change). Key highlights: a) Stage-3 assets rose by `13 billion owing to slippages aggregating Rs 20 billion (Haldia) that were partially offset by an upgrade of the `8-billion exposure to GVK Ratle; b) Though no major resolutions crystallised, the management believes `70–100 billion would come through over the next few quarters; c) A change in accounting policy (relating to stage 1/2 assets) led to a provisioning write-back; d) operating performance is steady (but soft) and supported by stable NIM; e) Following its investment in REC, PFC’s tier-1 fell to 11.7%, which is better than expected due to release of government guarantees. Going ahead, a build-up in operating performance and resolution of stressed projects are the key variables. Target multiple of 0.9x FY21E P/ABV factors in a fair bit of risk and as REC parent, more benefit will flow to PFC. Maintain ‘buy’ with a target price of `140.
Stage 3 assets rose (by `13 billion) to 9.4%, owing to `20 billion in slippages (Haldia). Currently, `176 billion (14 cases) are being resolved under NCLT while `112 billion (15) are being resolved outside NCLT. We understand GMR Chhattisgarh, Ratan India Amravati, Dans Energy, Shiga and Essar Transmission are expected to be resolved in the near term. The resolution pace is slower than anticipated, but visibility is improving.
Though disbursement somewhat improved, higher repayments led to below-trend loan book growth. Meanwhile, steady NIM (at 3.46%) supported revenue traction. We see improv-ement in growth momentum and NIM sustainability as critical to maintaining revenue traction. PFC’s FY19 performance is along anticipated lines with NIM settling higher and asset quality not throwing up any negative surprise.