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What is the story about?
Shares of Power Finance Corporation Ltd. (PFC) declined over 5% on Monday, August 10, after the company reported a weak set of earnings in the first quarter due to muted disbursements, soft loan growth and net interest margin (NIM) pressure.
However, its asset quality remained very strong and forex / provision benefits supported its profit after tax (PAT).
PFC's net interest income (NII) declined 4.3% from last year and 5.2% from the previous quarter to ₹5,233.5 crore.
The state-run power financier's operating profit was up 10.9% to ₹5,57.1 crore from last year's ₹4,831.3 crore but was down 16.1% from the prior quarter's ₹6,382.4 crore.
Provisions for the quarter declined by 18.5% on an annual basis and 59.8% on a sequential basis.
Its PAT of ₹4,745.4 crore grew 5.4% from last year and 25% from the previous quarter.
Its yield on loans declined both from the previous year and sequentially. Its NIM of 3.55% remained under pressure as it declined 38 basis points from last year and 28 basis points from the previous quarter.
Its credit cost stayed negative, though the benefit was lower than earlier periods.
PFC's loan book / assets under management (AUM) came in at ₹5.7 lakh crore in the June quarter, which was 4% more than last year but 1.7% lower than the March quarter.
Its disbursements were down 44% from last year and 50% from the previous quarter to ₹20,200 crore.
PFC's loan growth weakness was impacted by high pre-payments and seasonally weak first quarter disbursements. The management expects this to improve in the second half of FY27.
Brokerage firm CLSA has an "outperform" rating on PFC and has cut its target price to ₹500 per share from the previous ₹550 apiece. This indicates a 19.3% upside from its previous close.
It said PFC had earlier mentioned its target to complete the merger with REC by April 2027. It has trimmed its FY27 PAT estimates for both players by 2%-3%.
It said both companies reported a mixed June quarter. Loan growth continued to moderate for both, driven by a run-down of the Revolving Bill Payment Facility (RBPF) scheme book and modest growth for other segments.
It said PFC delivered a 4% increase in loan growth while REC delivered just 1%. But the good news is the RBPF book is now much smaller.
It said core margins were slightly lower on a sequential basis driven by moderation in lending yields.
It added that asset quality remained benign.
The brokerage also has an "outperform" rating on REC and has cut its target price to ₹420 apiece from the previous ₹450 apiece.
All 15 analysts who have coverage on PFC have "buy" recommendations on it.
PFC shares were trading 5.3% lower at ₹397.85 apiece at 11 am on Monday. The stock has gained 9.6% this year, so far.
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However, its asset quality remained very strong and forex / provision benefits supported its profit after tax (PAT).
PFC's net interest income (NII) declined 4.3% from last year and 5.2% from the previous quarter to ₹5,233.5 crore.
The state-run power financier's operating profit was up 10.9% to ₹5,57.1 crore from last year's ₹4,831.3 crore but was down 16.1% from the prior quarter's ₹6,382.4 crore.
Provisions for the quarter declined by 18.5% on an annual basis and 59.8% on a sequential basis.
Its PAT of ₹4,745.4 crore grew 5.4% from last year and 25% from the previous quarter.
Its yield on loans declined both from the previous year and sequentially. Its NIM of 3.55% remained under pressure as it declined 38 basis points from last year and 28 basis points from the previous quarter.
Its credit cost stayed negative, though the benefit was lower than earlier periods.
PFC's loan book / assets under management (AUM) came in at ₹5.7 lakh crore in the June quarter, which was 4% more than last year but 1.7% lower than the March quarter.
Its disbursements were down 44% from last year and 50% from the previous quarter to ₹20,200 crore.
PFC's loan growth weakness was impacted by high pre-payments and seasonally weak first quarter disbursements. The management expects this to improve in the second half of FY27.
CLSA cuts target price
Brokerage firm CLSA has an "outperform" rating on PFC and has cut its target price to ₹500 per share from the previous ₹550 apiece. This indicates a 19.3% upside from its previous close.
It said PFC had earlier mentioned its target to complete the merger with REC by April 2027. It has trimmed its FY27 PAT estimates for both players by 2%-3%.
It said both companies reported a mixed June quarter. Loan growth continued to moderate for both, driven by a run-down of the Revolving Bill Payment Facility (RBPF) scheme book and modest growth for other segments.
It said PFC delivered a 4% increase in loan growth while REC delivered just 1%. But the good news is the RBPF book is now much smaller.
It said core margins were slightly lower on a sequential basis driven by moderation in lending yields.
It added that asset quality remained benign.
The brokerage also has an "outperform" rating on REC and has cut its target price to ₹420 apiece from the previous ₹450 apiece.
Stock reaction
All 15 analysts who have coverage on PFC have "buy" recommendations on it.
PFC shares were trading 5.3% lower at ₹397.85 apiece at 11 am on Monday. The stock has gained 9.6% this year, so far.
Also Read: Kaynes Tech shares in focus after Q1 results; Motilal Oswal sees 30% upside, others cautious
