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Power Finance an Undeperformer – Kotak Securities

July 17, 2007

Power Finance Corporation’s [PFC] first quarter results look terrific at a glance but when you look at the finer details you will see that other income contributed to a large portion of the bottom line.

Kotak Securities has an Underperformer rating on the stock with a price target of Rs 125. CMP of PFC is Rs 195.

PFC has reported stable spread of 1.9% in 1Q08 and 4Q07. PFC’s ALM position seems comfortable in the near term. riable rate loans (with three-year reset) from FY2005 will be re-priced about 2-3% higher in FY2008; About 61% of PFC’s assets are floating as compared to 16% of its liabilities. This will help the company in a rising interest rate scenario.

PFC’s tax rate in 1Q07 was higher at 41% on account of prior period income tax demand. Consequently, reported PAT was subdued in that period. The 1Q08 effective tax rate was 32% in line with long-term trends.

PFC is expected to report an EPS of Rs 11.2 for FY2008 and Rs 12.8 for FY2009. Dalal Street Analyst advises Investors to Book Profits at CMP of Rs 198 as the stock looks expensive.

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