CMP 270.65

Target Price 300.00

ISIN: INE134E01011

JUNE 1st

, 2015

POWER FINANCE CORPORATION LTD

Result Update (PARENT BASIS): Q4 FY15

BUYBUYBUYBUY

Index Details

Stock Data

Sector Financial Services

BSE Code 532810

Face Value 10.00

52wk. High / Low (Rs.) 344.20/219.35

Volume (2wk. Avg. Q.) (Rs.) 531000

Market Cap (Rs. in mn.) 357268.83

Annual Estimated Results (A*: Actual / E*: Estimated)

YEARS FY15A FY16E FY17E

Net Sales 248613.20 279441.24 310179.77

EBITDA 246957.10 277599.37 307924.63

Net Profit 59593.30 64932.19 69830.82

EPS 45.15 49.19 52.90

P/E 6.00 5.50 5.12

Shareholding Pattern (%)

1 Year Comparative Graph

POWER FINANCE CORPORATION LTD BSE SENSEX

SYNOPSIS

Power Finance Corporation Ltd (PFC) is a public

limited company was set up on 16th July 1986 with an

objective to provide financial resources and flow of

investments to the power and associated sectors.

During the quarter, Company’s net sales registered

13.44% to Rs. 63895.70 million from Rs. 56323.60

million over the corresponding quarter last year.

In Q4 FY15, Net profit ramps up by 10.58% year-on–

year of Rs. 15607.60 million compared to Rs. 14114.10

million in Q4 FY14.

For Q4 FY15, Net Interest Income increased by 13% to

Rs. 25440.00 million from Rs. 22430.00 million for Q4

FY14.

Gross NPAs and Net NPAs stood at 1.09% and 0.87%

respectively in Q4 FY15.

The South-Central East Delhi Power Transmission Ltd

has been incorporated at Feb 18, 2015 as a wholly

owned subsidiary of PFC Consulting Limited, a wholly

owned subsidiary of PFC.

The company has recommended a final dividend of Rs.

0.60/- per share on face value of Rs. 10.00/- each for

the financial year 2015.

During Q4 FY15, loan sanctioned increased by 47.74%

of Rs. 131500.00 million against Rs. 89010.00 million

during the corresponding quarter of previous year.

In 4th quarter of FY 2015, the company’s total

Disbursements were at Rs.178510.00 million against

Rs. 169350.00 million in the 4th quarter of FY 2014.

Net Sales and PAT of the company are expected to

grow at a CAGR of 16% and 12% over 2014 to 2017E

respectively.

PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND

Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)

Power Finance Corp. Ltd. 270.65 357268.83 45.15 6.00 1.11 91.00

Rural Electrification Corporation Ltd. 297.50 293769.10 53.27 5.58 1.13 107.00

IDFC Ltd. 153.85 245147.70 10.58 14.54 1.66 26.00

Reliance Capital Ltd. 397.80 100497.30 29.96 13.28 0.81 90.00

Analysis & Recommendation - ‘BUY’

Power Finance Corporation Limited, total Income has increased from Rs. 56360.90 million for the quarter ended

Mar 31st, 2014 to Rs. 64214.90 million for the quarter ended 31st Mar, 2015, registered a growth of 13.94% y-o-

y. In Q4 FY15, Net profit Jumps to Rs. 15607.60 million compared to Rs. 14114.10 million in Q4 FY14. In the same

Dec quarter, Profits before interest, Depreciation and tax was Rs. 63989.70 million an increase of 15.29% y-o-y

against Rs.55504.60 million over corresponding quarter of previous year. During the quarter, Disbursements in

Generation were 47% whereas disbursements in Transmission 4% & for Distribution is 2% and Others

(including Transitional Finance , Studies, Short Term Loans, Buyer Line of Credit, funding of regulatory assets) by

47% from the total amount disbursements.

During the 4th Quarter of FY15, Loan Assets of the company increased by 15.09% to Rs. 2175160.00 million from

Rs. 1889950.00 million. For the quarter end of 31st Mar 2015, Net worth increased by 17.69% of Rs. 322190.00

million compared to Rs. 273750.00 million for the quarter end of 31st Mar, 2014. We expect that the company

surplus scenario is likely to continue for the next three years, will keep its growth story in the coming quarters

also. Over FY2014-17E, we expect the company to post a CAGR of 16% and 12% in its top-line and bottom-line

respectively. Hence, we recommend ‘BUY’ for ‘Power Finance Corporation Ltd’ with a target price of Rs.

300.00 on the stock.

QUARTERLY HIGHLIGHTS (PARENT BASIS)

Results updates- Q4 FY15,

Power Finance Corporation (PFC) provides affordable and competitive products and services by promoting

efficient investments in the power and allied sectors in India and abroad, has reported its financial results for the

quarter ended 31st March, 2015.

PFCL achieved a turnover of Rs. 63895.70 million for the 4th quarter of the financial year 2015 as against Rs.

56323.60 million in the corresponding quarter of the previous year. The company has reported an EBITDA of Rs.

63989.70 million and increase of 15.29% over corresponding quarter of the previous year. In Q4 FY15, net profit

registered 10.58% growth and stood at Rs. 15607.60 million against Rs. 14114.10 million in Q4 FY14. The

company has reported an EPS of Rs. 11.82 for the 4th quarter as against an EPS of Rs. 10.69 in the corresponding

quarter of the previous year.

Rs. In million Mar-15 Mar-14 % Change

Net Sales 63895.70 56323.60 13.44

PAT 15607.60 14114.10 10.58

EPS 11.82 10.69 10.58

EBITDA 63989.70 55504.60 15.29

Break up of Expenditure:

During the quarter total decreased by 72 per cent, mainly on account of other expenses is the primarily attribute

for the decrease of expenditure. Total expenditure (excluding Finance cost & other charges) in Q4 FY15 stood to

Rs. 241.20 million as against Rs. 868.50 million in Q4 FY14. Depreciation & Amortization incurred Rs.16.00

million against Rs.12.20 million in the corresponding period of the previous year and in the same quarter,

Employee Benefits expenses as stood at Rs. 194.20 million in Q4 FY15 compared to Rs. 219.70 million in Q4

FY14. Where as other Expenditure faced at Rs. 31.00 million against Rs. 636.60 million in the corresponding

quarter of previous year.

Latest Updates

• Power Finance Corporation Ltd has reported that the Odisha Generation Phase - II Transmission Limited and

Warora-Kurnool Transmission Limited has been incorporated at April 07, 2015 & April 20, 2015 respectively

as a wholly owned subsidiary of PFC Consulting Limited, a wholly owned subsidiary of Power Finance

Corporation Limited (PFC).

• The South-Central East Delhi Power Transmission Limited has been incorporated at Feb 18, 2015 as a wholly

owned subsidiary of PFC Consulting Limited, a wholly owned subsidiary of Power Finance Corporation

Limited (PFC).

• The company’s Net worth (Share Capital + All Reserves) increased by 17.69% of Rs. 322190.00 million in Q4

FY15 compared to Rs. 273750.00 million in Q4 FY14.

• For Q4 FY15, Net Interest Income increased by 13% to Rs. 25440.00 million from Rs. 22430.00 million for Q4

FY14.

• During Q4 FY15, loan sanctioned increased by 47.74% of Rs. 131500.00 million against Rs. 89010.00 million

during the corresponding quarter of previous year.

Business

� The company’s total Outstanding Sanctions were Rs.1449060.00 millions as on 31st March, 2015.

� GENERATION: For March quarter of FY15, The Company Sanctioned 72% of Rs.1049100.00 million from

the total amount sanctioned.

� TRANSMISSION: sanctioned 12% of Rs.179000.00 million in Q4 FY 15.

� DISTRIBUTION: For Q4 FY15, amount sanctioned of Rs. 97050.00 million, up by 7% from the total

outstanding sanctioned.

� OTHERS: whereas 9% of Rs.123920.00 million, Includes Transitional Finance , Studies, Short Term

Loans, Buyer Line of Credit, funding of regulatory assets.

� In 4th quarter of FY 2015, the company’s total Disbursements were at Rs.178510.00 million against Rs.

169350.00 million in the 4th quarter of FY 2014.

� During the quarter, Disbursements in Generation were 47% whereas disbursements in Transmission 4%

& for Distribution is 2% and Others (including Transitional Finance , Studies, Short Term Loans, Buyer

Line of Credit, funding of regulatory assets) by 47% from the total amount disbursements.

Asset Quality of PFC

Asset Quality (In million) As on 31-3-2015 As on 31-3-2014

Amount of Gross NPAs 23640.00 12280.00

Amount of Net NPAs 18900.00 9850.00

% of Gross NPAs 1.09 0.65

% of Net NPAs 0.87 0.52

COMPANY PROFILE

Power Finance Corporation Ltd (PFC) was set up on 16th July 1986 as a public limited company and was granted

certification of commencement of business on Dec 31st, 1987. The Corporation was notified as a Public Financial

Institution in 1990 under Companies Act, 1956. PFC is a leading power sector public financial institution and a

non-banking financial company in India, provides affordable and competitive products and services with efficient

and internationally integrated sourcing and servicing, partnering the reforms in the Indian Power Sector and

enhancing value to its stakeholders; by promoting efficient investments in the power and allied sectors in India

and abroad.

PFC was incorporated with an objective to provide financial resources and encourage flow of investments to the

power and associated sectors, to work as a catalyst to bring about institutional improvements in streamlining the

functions of its borrowers in financial, technical and managerial areas to ensure optimum utilization of available

resources and to mobilize various resources from domestic and international sources at competitive rates.

PFC, which has entered its Silver Jubilee Year in 2010, is a Schedule-A, Nav-Ratna CPSE (conferred by Govt. of

India on 22nd June, 2007) in the Financial Service Sector, under the administrative control of the Ministry of

Power. Its Registered and Corporate Offices are at New Delhi.

Products & Services

It provides a wide range of financial products and services such as project term loan, lease financing, direct

discounting of bills, short term loan, consultancy services, etc. for various power projects in generation,

transmission, distribution sector as well as for renovation & modernization of existing power projects.

PFC's priorities include not only accelerating the pace of existing business of funding generation, transmission

and distribution projects but also to exploit the new opportunities available in the area of consortium lending,

lending to Capital equipment manufacturers and fuel supply projects and related infrastructure development

projects, renewable energy and CDM, and equity funding.

Clients

• State Electricity Boards

• State Power Utilities

• State Electricity/Power Departments

• Other State Departments engaged in the

development of power projects

• Central Power Utilities

• Joint Sector Power Utilities

• Equipment Manufacturers

• Private Sector Power Utilities

Subsidiaries

• PFC Subsidiaries

� PFC Consulting Ltd.

� PFC Green Energy Ltd.

� PFC Capital Advisory Services Ltd.

� Power Equity Capital Advisors Ltd.

� Chhattisgarh Surguja Power Ltd.

� Coastal Karnataka Power Ltd.

� Coastal Maharashtra Mega Power Ltd.

� Coastal Tamil Nadu Power Ltd.

� Orissa Integrated Power Ltd.

� Sakhigopal Integrated Power Company Ltd.

� Ghogharpalli Integrated Power Company Ltd

� Tatiya Andhra Mega Power Ltd.

� Deoghar Mega Power Ltd

• Joint Ventures & Associate Companies

� National Power Exchange Ltd.

� PTC India Limited

� Energy Efficiency Services Ltd

FINANCIAL HIGHLIGHT (PARENT BASIS) (A*- Actual, E* -Estimations & Rs. In Millions)

Balance Sheet as at 31

st March, 2014 -2017E. FY-14A FY-15A FY-16E FY-17E

I EQUITY AND LIABILITIES:

A) Shareholder's Funds

a) Share Capital 13200.20 13200.40 13200.40 13200.40

b) Reserves and Surplus 260545.70 308991.70 361520.29 419363.54

Total Net worth 273746.10 322192.10 374720.69 432563.94

B) Non Current Liabilities

a) long term borrowing 1424915.70 1649734.60 1847702.75 2002909.78

b) Deferred Tax Liability (net) 2742.20 1892.50 2043.90 2309.61

c) Other Long term liabilities 3476.20 3338.10 3438.24 3610.16

d) Long term Provisions 4730.40 9636.10 12719.65 16535.55

Total Non Current Liabilities 1435864.50 1664601.30 1865904.55 2025365.09

C) Current Liabilities

a) Current maturity of long term borrowing 154090.00 187352.80 213582.19 241347.88

b) Short term borrowing 13144.90 40644.10 56088.86 74598.18

c) Other Current liabilities 62440.00 66601.50 70597.59 74127.47

d) Short term Provisions 2355.50 5252.30 6722.94 8201.99

Total Current Liabilities 232030.40 299850.70 346991.58 398275.52

Total Equity And Liabilities (A + B + C) 1941641.00 2286644.10 2587616.82 2856204.55

II ASSETS

D) Non-Current Assets

a) Fixed Assets 706.30 657.90 625.01 640.01

b) Non Current Investments 3483.40 3472.80 3646.44 3938.16

c) Long Term loans and advances 1687921.10 1978429.10 2247495.46 2494719.96

d) Other non-current assets 2096.80 2247.20 2471.91 2669.67

Total Non-Current Assets 1694207.60 1984807.00 2254238.82 2501967.80

E) Current Assets

a) Current Investment 38.30 5040.40 7459.79 9846.92

b) Cash and Bank Balances 601.40 50708.00 72512.44 88465.18

c) Current Maturities of Long Term loans 180429.50 163120.90 152518.04 142756.89

d) Short-terms loans 23961.80 28872.20 33203.03 36523.33

e) Other current assets 42402.40 54095.60 67684.70 76644.43

Total Current Assets 247433.40 301837.10 333378.00 354236.75

Total Assets (D+E) 1941641.00 2286644.10 2587616.82 2856204.55

Annual Profit & Loss Statement for the period of 2014 to 2017E

Value(Rs.in.mn) FY14A FY15A FY16E FY17E

Description 12m 12m 12m 12m

Net Sales 215224.20 248613.20 279441.24 310179.77

Other Income 150.40 454.80 673.10 908.69

Total Income 215374.60 249068.00 280114.34 311088.46

Expenditure -2260.90 -2110.90 -2514.97 -3163.83

Operating Profit 213113.70 246957.10 277599.37 307924.63

Interest -137481.30 -163113.90 -185949.85 -209193.58

Gross profit 75632.40 83843.20 91649.52 98731.05

Depreciation -49.30 -60.90 -66.75 -72.09

Profit Before Tax 75583.10 83782.30 91582.78 98658.97

Tax -21405.60 -24189.00 -26650.59 -28828.15

Net Profit 54177.50 59593.30 64932.19 69830.82

Equity capital 13200.20 13200.20 13200.40 13200.40

Reserves 260545.70 308991.70 361520.29 419363.54

Face value 10.00 10.00 10.00 10.00

EPS 41.04 45.15 49.19 52.90

Quarterly Profit & Loss Statement for the period of 30th Sept, 2014 to 30th June, 2015E

Value(Rs.in.mn) 30-Sep-14 31-Dec-14 31-Mar-15 30-June-15E

Description 3m 3m 3m 3m

Net sales 63047.00 64346.50 63895.70 66707.11

Other income 43.50 37.00 319.20 280.90

Total Income 63090.50 64383.50 64214.90 66988.01

Expenditure -578.40 -780.20 -225.20 -600.36

Operating profit 62512.10 63603.30 63989.70 66387.64

Interest -42282.20 -42059.40 -41975.30 -44074.07

Gross profit 20229.90 21543.90 22014.40 22313.58

Depreciation -15.60 -14.60 -16.00 -16.80

Profit Before Tax 20214.30 21529.30 21998.40 22296.78

Tax -6128.50 -6112.00 -6390.80 -6354.58

Net Profit 14085.80 15417.30 15607.60 15942.20

Equity capital 13200.40 13200.40 13200.40 13200.40

Face value 10.00 10.00 10.00 10.00

EPS 10.67 11.68 11.82 12.08

Ratio Analysis

Particulars FY14A FY15A FY16E FY17E

EPS (Rs.) 41.04 45.15 49.19 52.90

EBITDA Margin (%) 99.02% 99.33% 99.34% 99.27%

PBT Margin (%) 35.12% 33.70% 32.77% 31.81%

PAT Margin (%) 25.17% 23.97% 23.24% 22.51%

P/E Ratio (x) 6.59 6.00 5.50 5.12

ROE (%) 19.79% 18.50% 17.33% 16.14%

ROCE (%) 15.50% 14.38% 15.09% 15.62%

Debt Equity Ratio 4.02 4.33 3.91 3.56

EV/EBITDA (x) 6.84 6.87 6.28 5.84

Book Value (Rs.) 207.38 244.08 283.87 327.69

P/BV 1.31 1.11 0.95 0.83

Charts

OUTLOOK AND CONCLUSION

� At the current market price of Rs. 270.65, the stock P/E ratio is at 5.50 x FY16E and 5.58 x FY17E

respectively.

� Earning per share (EPS) of the company for the earnings for FY16E and FY17E is seen at Rs.49.19 and

Rs.52.90 respectively.

� Net Sales and PAT of the company are expected to grow at a CAGR of 16% and 12% over 2014 to 2017E

respectively.

� On the basis of EV/EBITDA, the stock trades at 6.28 x for FY16E and 5.84 x for FY17E.

� Price to Book Value of the stock is expected to be at 0.95 x and 0.83 x respectively for FY16E and FY17E.

� We recommend ‘BUY’ in this particular scrip with a target price of Rs.300.00 for Medium to Long term

investment.

INDUSTRY OVERVIEW

India has a diversified financial sector, which is undergoing rapid expansion. The sector comprises commercial

banks, insurance companies, non-banking financial companies, co-operatives, pension funds, mutual funds and

other smaller financial entities. The financial sector in India is predominantly a banking sector with commercial

banks accounting for more than 60 per cent of the total assets held by the financial system.

India's services sector has always served the country’s economy well, accounting for about 57 per cent of the

gross domestic product (GDP). In this regard, the financial services sector has been an important contributor.

The Government of India has introduced reforms to liberalise, regulate and enhance this industry. At present,

India is undoubtedly one of the world's most vibrant capital markets. Challenges remain, but the future of the

sector looks good. The advent of technology has also aided the growth of the industry. About 75 per cent of the

insurance policies sold by 2020 would, in one way or another, be influenced by digital channels during the pre-

purchase, purchase or renewal stages, as per a report by Boston Consulting Group (BCG) and Google India.

Market Size

The size of banking assets in India reached US$ 1.8 trillion in FY14 and is expected to touch US$ 28.5 trillion by

FY25. The Association of Mutual Funds in India (AMFI) data show that assets of the mutual fund industry have hit

an all-time high of about Rs 12 trillion (US$ 189.83 billion). Equity funds had inflows of Rs 52170.00 mn (US$

825.49 million), taking total inflows on a year-to-date basis to Rs 610890.00 mn (US$ 9.66 billion). Income funds

and liquid funds account for the largest proportion of AUM, with Income funds accounting for Rs 5.22 trillion

(US$ 82.59 billion) and equity funds accounting for Rs 3.06 trillion (US$ 48.41 billion).

Investments/Developments

• India has moved a step closer to having a Singapore- or Dubai-like financial hub, with the Securities and

Exchange Board of India (SEBI) approving a framework for international financial centres (IFCs)

• Maharashtra’s plans to promote Mumbai as a global financial centre have received further encouragement as

Wall Street firm JPMorgan Chase & Co. and the Japanese government arm Japan External Trade Organization

(Jetro) agreed to partner with the state government to hold road shows to attract financial services

companies to Mumbai.

• Bandhan Financial Services Pvt. Ltd has raised Rs 16000.00 mn (US$ 252.97 million) from two international

institutional investors to help convert its microfinance business into a full service bank.

• JP Morgan Asset Management (UK) Ltd, JP Morgan Investment Management Inc and JP Morgan Chase Bank

NA, have acquired a 4.11 per cent stake in Mahindra & Mahindra Financial Services Ltd for Rs 1137.50 mn

(US$ 17.98 million).

Government Initiatives

Several measures have been outlined in the Union Budget 2014-15 that aim at reviving and accelerating

investment which, inter alia, include fiscal consolidation with emphasis on expenditure reforms and continuation

of fiscal reforms with rationalization of tax structure; fillip to industry and infrastructure, fiscal incentives and

concrete measures for transport, power, and other urban and rural infrastructure; measures for promotion of

foreign direct investment (FDI) in selected sectors, including defence manufacturing and insurance; and, steps to

augment low cost long-term foreign borrowings by Indian companies. Fiscal reforms have been bolstered further

by the recent deregulation of diesel prices. The launch of ‘Make in India’ global initiative is intended to invite

both domestic and foreign investors to invest in India. The aim of the programme is to project India as an

investment destination and develop, promote and market India as a leading manufacturing destination and as a

hub for design and information. The programme further aims to radically improve the Ease of Doing Business,

open FDI regime, improve the quality of infrastructure and make India a globally competitive manufacturing

destination.

Road Ahead

India is today one of the most vibrant global economies, on the back of robust banking and insurance sectors. The

country is projected to become the fifth largest banking sector globally by 2020, as per a joint report by KPMG-

CII. The report also expects bank credit to grow at a compound annual growth rate (CAGR) of 17 per cent in the

medium term leading to better credit penetration. Life Insurance Council, the industry body of life insurers in the

country also projects a CAGR of 12–15 per cent over the next few years for the financial services segment.

Also, the relaxation of foreign investment rules has received a positive response from the insurance sector, with

many companies announcing plans to increase their stakes in joint ventures with Indian companies. Over the

coming quarters there could be a series of joint venture deals between global insurance giants and local players.

Disclaimer:

This document is prepared by our research analysts and it does not constitute an offer or solicitation for the

purchase or sale of any financial instrument or as an official confirmation of any transaction. The information

contained herein is from publicly available data or other sources believed to be reliable but we do not represent that

it is accurate or complete and it should not be relied on as such. Firstcall Research or any of its affiliates shall not be

in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the

information contained in this report. Firstcall Research and/ or its affiliates and/or employees will not be liable for

the recipients’ investment decision based on this document.

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