The June quarter profit after tax of Power Finance Corp. Ltd (PFC), at Rs555 crore, is up a huge 87% over a year ago, but after weeding out extraordinary items such as foreign exchange gains and losses that don’t relate directly to the company’s operations, profit before tax and items is higher by 38%.
Disbursements during the quarter, at Rs4,345 crore, were 8% lower than a year ago. Sanctions, though, were 24% higher at Rs18,782 crore, a very good sign considering that sanctions in FY09 were 18% lower than in the previous year.
Moreover, sanctions in the June quarter are considerably higher than they were in the March quarter. PFC’s targets for the current fiscal are Rs60,000 crore in sanctions and Rs23,000 crore in disbursements. The higher amounts sanctioned in the June quarter should lead to a pick-up in disbursements in the succeeding quarters.
The growth of loan assets is good at 21% year-on-year. That growth, together with a rise in net interest margin from 3.81% in the first quarter of FY09 to 4.26% in the corresponding quarter in FY10, resulted in 36% year-on-year growth in net interest income.
During the June quarter, PFC’s yield on assets was 11.3%, more than the yield of 11.2% in the March quarter. Ahmed Raza Khan / Mint
During the June quarter, PFC’s yield on assets was 11.3%, more than the yield of 11.2% in the March quarter. Yet, the cost of funds at 8.64% was lower in the June quarter than the 8.78% for the March quarter, which increased spreads from 2.42% in the March quarter to 2.66%. But lending rates have been revised downwards and the management has been at pains to emphasize they see a spread of nearer 2% as more sustainable.
The company’s financial profile improved during the quarter, with the debt-equity ratio coming down from 5.2 at the end of March to 4.85 by end-June. Leverage, defined as average assets divided by the average net worth, fell from 6.72 in the March quarter to 6.26. Loan quality has remained good, with bad loans at 0.01% of total loans.
The company’s net worth has been augmented by the write-back of deferred tax liability created on a special reserve, which has been agreed to by the auditing standards board of the Institute of Chartered Accountants of India. That will allow it to borrow more. The company’s capital adequacy ratio, too, is a high 17.5%.
The PFC stock trades at around 2.2 times book value. Realizing the importance the government attaches to the power sector and considering the stock underperformed in the recent rally, the price is not high. But investors have already bid up the price of the stock by almost 20% in the past week.
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