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Power Finance Corporation’s (PFC) Q3FY23 earnings surpassed I-Sec estimates – buoyed by provisioning write-back of Rs1.3bn. Flow of resolutions led to 54bps QoQ and 115bps YoY decline in stage-3 pool to 4.21%, while adequate
provisioning towards the same also led to 12bps QoQ and 81bps YoY decline in net stage-3 to 1.19%. Drawing down from sanctions pipeline, disbursements grew 36% YoY in 9MFY23. Incremental sanctions under various power schemes revive hope on loanbook growth gathering pace gradually (was up 4% QoQ and 6% YoY). Of the total foreign currency portfolio, 62% (68% QoQ and 55% YoY) has been hedged to minimise the impact of INR depreciation; PFC booked for extranslation/ transaction loss of Rs2.6bn in Q3FY23. It declared an interim dividend of Rs8.75/share in 9MFY23, which works out to ~28% payout of PAT in 9MFY23. Given the inexpensive valuations at 0.6x FY24E P/ABV, coupled with improving asset quality metrics and likely gradual uptick in AUM growth, we maintain BUY on the stock with an unchanged target price of Rs191 (0.8x FY24 P/ABV).

? One project resolved during the quarter and a total of five during the past 12 months: In line with the company’s earlier guidance, Ind-Barath Energy Utkal exposure of Rs13.7bn was resolved under NCLT. The project has been taken over by JSW and PFC has sufficient provisioning towards the same. Hence, over the past 12 months, PFC has resolved five stressed assets, amounting to Rs59.6bn. These five assets are: Essar Power MP (Rs13.45bn), RS India Wind Energy (Rs2.24bn), South-East UP Power Transmission (Rs22.63bn), Jhabua Power (Rs7.64bn) and Ind-Barath Energy Utkal (Rs13.68bn). As a result, stage-3 pool now stands at 4.2% vs 4.8% QoQ and 6.1% YoY while net stage-3 is now at 1.2% vs 1.3% QoQ and 2.0% YoY

Currently, 22 stressed projects of Rs165bn are in stage-3 - of which 12 projects totaling Rs110bn are being resolved under NCLT and the remaining 10 projects of totaling Rs56bn are being resolved outside NCLT. Furthermore, 2 projects – namely Dans Energy with exposure of Rs4.1bn and Lanco Amarkantak Power with exposure of Rs23.8bn – are in advanced stages of resolution. Incremental resolutions are likely to keep the stress pool under check.
PFC has further clarified that it does not have any exposure to any of the listed

companies of Adani Group. However, PFC has provided loan to various project-
specific SPVs in Adani Group with outstanding of Rs83.14bn. These project SPVs

have separate cashflows and security structure.

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