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Electrifying Results from REC – PFC Trying to Catch Up

July 23, 2010

REC reported strong disbursement in Q1FY11, of INR 46.4 bn (28% Y-o-Y), led by generation projects; disbursements in T&D were, however, relatively lower. Sanctions were robust at INR 228.8 bn – a growth of 51% Y-o-Y led by sanctions under the T&D segments and spillover from the earlier quarter.

REC reported earnings of Rs5.9bn (up 25% yoy; in line). But, excluding few oneoffs of last year (income tax-refund from earlier years and one-off other income of Rs180mn), adj. earnings growth is +35% yoy. Top-line growth (in line) was 35% yoy, driven by 29% volume growth and margins expanding 17bps yoy (14bps qoq, partly driven by cap. raise) to 4.6%. However, spreads are down 17bps yoy (flat qoq). Sanctions are up +50% yoy; disbursement up 28% yoy in 1QFY11. Asset quality manageable with gross at <3bps. CAR comfortable at ~21%. EPS Expectations of REC for FY 11 and FY 12 :
Edelweiss – Rs 25 and 30
BOFA Merrill – 26 and 32
Kotak – 25 & 30

Power Finance Corporation – PFC
PFC Dissbursement grew strongly at 87% Y-o-Y to INR 81.3 bn and loan book grew 29% Y-o-Y to INR 856 bn. Unutilised sanctions were INR 1.42 tn, of these, ~70% were towards projects where documents have been executed. Further, more than 20% of these utilised sanctions are in favour of private projects. This trend suggest better traction in disbursements than in previous years.

PFC reported earnings of Rs6.5bn (up 18% yoy; +17% ahead). But, excluding few one-offs (income tax-refund from earlier years and translation gain), adj. earnings growth is 23% yoy. Topline growth (in-line) was 23% yoy driven by 29% volume growth, but margins down 17bps yoy to 4.1% on improving leverage. Spreads, however, are up 9bps yoy to 2.8%.

Earnings Estimates of PFC for FY 11 and FY 12
BOFA Merrill – Rs 24 and Rs 30
Edelweiss – Rs 22 and Rs 27
Kotak Rs 23 and Rs 27

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