Buy Recommendation – Power Finance Corporation
Fresh investments can be considered in the Power Finance Corporation (PFC) stock that appears a good defensive bet within the financial sector. The company’s loan book grew at a strong pace of 20 per cent in 2009 despite lower demand for credit witnessed by the banking sector. At current market price of Rs 252, the PFC stock is trading at 10.5 times its estimated FY11 earnings and two times its estimated adjusted book value, which does not reflect the strong earnings growth posted by the company.
Near-zero non-performing assets and a high proportion of floating rate assets (87 per cent) allow PFC to pass on interest hikes and minimise credit risk. Strong earnings growth (36 per cent for nine months ended December 31, 2009, adjusted for extraordinary items), superior profitability (Return on Equity of 17 per cent) and the insatiable funding requirements of the power sector make for bright growth prospects.
The outlook for power financing looks promising given that investments of Rs 10 lakh crore are expected in the power generation alone over the next eight years. PFC being the market leader may corner a chunk of this pie.
Source: Businessline
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