Power Finance Corp - Buy on declines

Power Finance Corporation: Buy

Investors can consider accumulating the stock of Power Finance Corporation. It has been an underperformer in the recent rally, despite the company’s strong growth prospects. PFC has consistently managed strong loan disbursals and superior margins. A focus on secured lending (as the loans are secured by escrow accounts or assets), superior asset quality (Gross NPA is 0.02 per cent of the total advances) and the ability to source funds at low costs (given its sovereign credit rating) are key positives, at a time when financial stocks have been dogged by asset quality and margin concerns. At the current market price, the stock trades at a price-earnings multiple of 13; at 1.8 times its FY09 book value.

PFC is an NBFC (not under RBI supervision), which is a specialised financier of power sector projects. Its loan book grew by 25 per cent in 2008-09 aided by higher disbursements. Improved net interest margins (3.84 per cent) helped the company manage a net interest income growth of 25 per cent. However, notional forex losses led to a muted net profit growth of 12 per cent (the company has chosen not to take advantage of the relaxation in forex accounting norms). By March 2009, only 48.3 per cent of the loans sanctioned were disbursed, leaving a gap of about Rs 1,20,000 crore which is about 1.85 times PFC’s existing loan book. That lends high earnings visibility, as credit offtake in the power sector may continue to grow at a strong pace due to funding gap of Rs 10,31,600 crore in the current Five Year Plan (2007-2012). The cost of funds for PFC is lower than other NBFCs given the sovereign rating; it also enjoys the lowest risk weight among the corporate borrowers, for bank loans.

Over the next few years, while the core power sector may be a key growth driver, the company will also benefit from its foray into related sectors such as equipment financing and coal mining projects. PFC is also looking at consortium financing along with other banks, to fund power projects. It has also set up a private equity company which will invest equity in power projects. Delays in execution of power projects or policy related hurdles to power sector capex, are the key risks to the earnings outlook. Demand for loan restructuring and slippages in asset quality also pose risks to the outlook.

M.V.S Santosh Kumar

Source : businessline 19 April 09

Our Research Team Views :

Day High Low Rs.161-147

Monthly High Low Rs.125-165

6M H/L Rs. 90-165

This share has risen sharply more than 60% in the last 4 months. The following are the idea ranges for buying nd selling :

Buying Range : Rs.100-115

Selling Range : Rs. 150-165

Wait for the price to the buying range on correction in the stock markets.  

Holding period : 2-3 months

Returns expected : 50% plus

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Market cues and Share Tips 16 Feb 2009

Markets scaled a five-week high on expectations of stimulus measures in the interim Budget and a rate cut from RBI to ‘support’ the economy.

On the Bombay Stock Exchange, the Sensex closed 334 points higher at 9,635 and the Nifty on the National Stock Exchange gained 105 points to close at 2,948 during the week ended. Market breadth improved and sharp moves in many midcap and smallcap stocks reflect wider participation by market players.

While positive cues like fall in inflation to a one-year low and changes in FDI norms ‘boosted’ markets, negatives like weak global cues, weak IIP numbers and revision of GDP projecting slower growth kept the bulls on leash.

Fears over deepening rece-ssion and uncertainty in global equity markets are prompting investors opt for gold and silver. Punters exp-ect gold to cross $1,000 an ounce mark very soon.

Market players caution investors against “unreasonable expectations” regarding the Vote-On-Account. Chartists predict a trading band of 9,200-10,400 for the Sensex and 2,820-3,100 for the Nifty in the week ahead.

The Sensex and the Nifty could face resistance at 9,840 and 2,980, if rise abo-ve these levels, the indices may touch 10,600 and 3,150 levels in the near term.

Be bearish below 9,380 and 2,860 level on the indices on closing basis.

With no major trigger left after interim Budget, markets are likely to move in a broad range of 8,400-11,000 (Sensex) and 2,600-3,200 (Nifty) for next few weeks.

Don’t trade on the basis of tips. In other words, “trade with the trend, not your friend.” Get accurate information. Always demand facts, not opinions.

SATTA GUPSHUP

* Orient Paper and Inds is a diversified company with interests in paper, cement and fans. Its plants are strategically located in stro-nger growth markets of the south and the west. Buy value is Rs 25, trailing twelve month EPS is Rs 10 and the last dividend was 120 per cent. Buy at current levels for a medium-term target of Rs 33.

* Auto component major Bharat Forge is reportedly increasing focus on non-automotive businesses like railways, aerospace, power, marine and construction equipment. With commissioning of new facilities at Baramati and Mundhwa, sources indicate that share of non-automotive business to increase to 30 per cent. Buy in the present correction for portfolio.

* Allcargo Global Logistics is a logistics company operating in seven key areas of logistics. Its third quarter results were better than expectations due to its dive-rsified mix. Buy on declines for strong returns in the medium term.

* Recent coverage by some institutions triggered buying in Hind Dorr and Take Solutions. Chennai-based Take Solutions is a supply chain management and life sciences product company. Hi-nd Dorr is primarily in water infrastructure management with significant EPC business. Buy both the counters on declines for returns in the medium term.

* Onmobile is a pioneer and leader in the Indian VAS market having nearly all telecom operators as its clients. It is reportedly planning to tap international market. Buy on declines for unexpected sharp gains.

F & O

Mirroring the strong bullish undertone in the markets, brisk trading volumes were seen in derivatives segment. Overall open interest shot up to a three-month-high and stock futu-res saw a highest open interest addition since September 2006 reflecting ‘confidence’ of the traders over near-term strength of the rally. However, ‘quick’ unwinding of positions is not ruled out on evidence of negative surprises.

Sector-specific and long-term build-up was seen in cement, auto, fertiliser and metal counters. A modest and short-term build-up was seen in construction, infra and banking stocks.

Stocks that witnessed positive open interest build up are Adlabs, Balrampur Chini, Shree Renuka, Idea, R Comm., Power Grid, PTC, PFC, TV-18, Dish TV, RIL, RPL, LIC Hsg, Nalco and Crompton Greaves.

Inclusion of PowerGrid in MSCI index has triggered renewed buying in the counter. Buy on declines for a target price of Rs 125.

A sharp rally likely in RPL and JP Associates, say punters. The rally in media stocks to continue for some more time, say industry watchers. Stay invested for further gains.

Telecom counters witnessing a renewed buying interest from funds. Buy Idea and RComm. for a target price of Rs 65 and Rs 220 respectively in the near-term.

More sweet returns indicated in sugar counters. Use declines to accumulate. Cement and metal counters are attracting good buying on reports of better dispatches and modest improvement in price trends. Stay invested for further gains.

Though luck plays a great role in speculation, it demands cool judgment, courage, pliability and prudence.

Kutumba Rao is a Hyderabad-based stock market analyst. The views expressed and the recommendations made are those of the author. Readers are strongly recommended to consult their financial advisors before making any financial investments. This newspaper is not liable for investment decisions made on the basis of recommendations in these columns.

Source : deccan.com

Tags : Idea, RComm, RPL, JP Associates, Adlabs, Balrampur Chini, Shree Renuka, Idea, R Comm., Power Grid, PTC, PFC, TV-18, Dish TV, RIL, RPL, LIC Hsg, Nalco, Crompton Greaves.