Emkay Global Financial is bullish on Power Finance Corporation has recommended buy rating on the stock with a target price of Rs 220 in its research report dated August 13, 2021.
Broker Research
August 18, 2021 / 01:45 PM IST
An Edelweiss research report for Q4FY21 says road tonnage continued to improve, evident in e-way bill generation (up 6% QoQ) and improved core trucking rentals. “We estimate tonnage would increase by three–five percent for truckers. Asset-light plays Mahindra Logistics and TCI Express remain our preferred picks due to their ability to scale up/down as the environment demands,” the report said. Edelweiss is bullish on Blue Dart Express due to the pandemic-induced boom in e-commerce and its leaner cost structure. It has retained a ‘buy’ call on Mahindra Logistics, TCI Express and Blue Dart Express.
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Emkay Global Financial’s report on Power Finance Corporation
PFC reported healthy trends in profitability, with PAT of Rs22.7bn (+33.8% yoy, -2.3% qoq), driven by improvement in margins (~381bps) and credit costs (~49bps vs. ~86bps last quarter). However, disbursements remained weak at Rs113.3bn (-45.4% yoy, -18.2% qoq), mainly due to weak demand across segments. Asset-quality trends were encouraging, as out of the total Stage-3 assets of Rs211.5bn for 26 projects, 16 projects worth Rs158.2bn are already admitted under the NCLT with ~69% provision coverage, while 10 projects worth Rs53.3bn with 54% coverage are being pursued outside the NCLT. Overall coverage improved to ~65% from ~63% last quarter. Yields are re-prized at lower rates from Apr’21 to improve competitiveness among lenders. Hedging of ~86% of forex loans (maturing up to 5 years) also provides comfort over volatile forex losses. Aatmanirbhar plans for SEB may support near-term disbursements; however, finding new growth avenues – amid weak thermal power additions – is a necessity.
Outlook
We continue to like the company based on improving asset-quality trends and an attractive risk-reward. Maintain Buy and roll forward to Sept’22E with a revised TP of Rs220 (Rs215 earlier), corresponding to ~1x P/Adj. Sept’23E book. We are increasing the dividend payout estimate to ~45% by FY24E, based on revised guidelines from the RBI.
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