Recommendation from Finance Sector
This section gives a recommendation of a stock having stock price below Rs 150 with sound fundamentals and expected to give handsome returns over a one-year time horizon.
Power Finance Corporation.: IN A POSITION OF POWER
HERE IS WHY
✓Strong market share
✓High dividend yield
✓Attractive PB multiple
Power Finance Corporation (PFC) Ltd. was incorporated on July 16, 1986. It is a leading non-banking financial corporation (NBFC) Maharatna in the country. The company is under the administrative control of the Ministry of Power. PFC plays a crucial role in the rise of India as a global player. Increasingly, a country’ development is gauged by measuring its energy usage. With a large fraction of the nation still, unfortunately, without any access to electricity, PFC will become an increasingly important player in the years to come. To drive sustained growth, it explores and taps emerging opportunities in the field of e-mobility, energy storage and renewable energy equipment manufacturing through which it has earned a strong market share of 20 per cent.
The company reported net sales of ₹76,025.6 crore in FY22 compared to ₹71,709 crore in FY21. That is a growth of nearly 6 per cent. The EBIDTA stood at ₹68,148 crore in FY22 as against ₹64,613 crore in the previous year which reflects increase of over 5.5 per cent.
Also, the PAT witnessed a jump of 19.6 per cent to ₹18,790.6 crore from ₹15,710 crore in FY21. The cash flows from operating activities improved significantly from negative ₹(59,143) crore in FY21 to ₹1,632 crore in FY22. In Q4FY22, revenue grew by 3.94 per cent YoY to ₹18,771.17 crore. On a sequential basis, the top-line was down by 1.8 per cent.
PBIDT excluding other income was reported at ₹16,360.57 crore, up by 0.73 per cent YoY and the corresponding margin was reported at 86.78 per cent, contracting by 271 basis points YoY. PAT was reported at ₹4,295.9 crore, up by 10.25 per cent YoY. The PAT margin stood at 22.79 per cent in Q4FY22, expanding from 21.47 per cent in Q4FY21. On the returns front, it hasn’t disappointed the shareholders. The ROE stood at 28.5 per cent. However, the ROCE was low at 9.5 per cent. The stock is trading at low PE of 1.96 while the industry PE stood at 3.5. The price-tobook value stood at 0.38 times which adds points for value investors.
As of March 31, 2022, the net debt-toequity ratio stood at 5.38 times. NBFCs tend to have higher debt since they usually raise money through bonds issue. For example, on September 13, 2021, it issued Euro bond to raise Euro 300 million. It was the first time for an Indian company to issue Eurodenominated green bonds. PFC’s net credit impaired assets ratio stood at 1.76 per cent, down from 2.09 per cent in the previous year, which reflects its improved asset quality. The capital adequacy ratio stood at 23.48 per cent which is well above the RBI’s required level of 15 per cent.
Above all, the company is known for dividends. The dividend yield stands high at 11.6 per cent. PFC has a dominant market share and a strong presence in its industry. This has been made possible because of its associates and subsidiaries. One of the notable acquisitions has been REC Ltd., a listed finance organisation engaged in similar business. PFC acquired REC in March 2019 for a sum of ₹14,500 crore for 52.63 per cent equity stake. As the saying goes, “A bird in hand is better than two in the bush.” With its high dividends and attractive valuation, PFC ticks almost all the boxes for value investors. Hence, we recommend our reader-investors to BUY this scrip.
