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PFC reported a soft Q4 in terms of AUM growth and disbursement, but delivered strong profitability led by higher recoveries and provision writeback. Loan book grew 6.8% YoY; the management attributed the soft growth to high prepayments and resolution in stressed assets. It guided for ~10% growth in FY27, as it expects prepayments to moderate as the rate-cut cycle has paused and disbursement share of short-term schemes like RBPF will reduce. Margins in the quarter moderated slightly, as yields moderated due to rising competition and improving DISCOM ratings while CoF inched up on a combination of forex volatility and lagged liability repricing. The management guides for spreads at 2.4-2.5% in FY27. It also indicated that the proposed PFC-REC restructuring is targeted to be completed by FY27-end, subject to requisite regulatory approvals; the final structure remains under discussion. Factoring in Q4 performance and management commentary, we trim our growth and margin estimates, resulting in a ~4-5% cut in FY27-28E EPS; we still expect PFC to deliver 16-17% RoE. We reiterate BUY and raise Mar-27E TP by ~11% to Rs500 from Rs450 (implying FY28E standalone P/B of ~1.0x, based on Rs440 TP for REC and 25% holdco discount).

Softer loan growth, but asset quality remains robust

PFC’s Q4FY26 performance, despite softer loan growth YoY amid elevated prepayments, remained healthy across profitability, capitalization, and asset quality metrics. The standalone loan book expanded ~7% YoY to Rs5.8trn, while disbursements for the quarter came at Rs400bn. Margins moderated marginally, with yields at 9.96% and CoF at 7.50%, resulting in spread and NIM of 2.46% and 3.55%, respectively. Profitability remained strong, with standalone PAT rising 23% YoY to Rs63.2bn, aided by provision reversals from resolutions. Asset quality improved sharply, with GNPA/NNPA declining to 1.09%/0.15% with a healthy PCR of 86% on stage 3 assets.

Growth outlook supported by strong sanction pipeline

The management expects ~10% loan growth in FY27, supported by a strong sanctioned pipeline of ~Rs2.3trn and rising opportunities across renewable energy, storage, transmission, and DISCOM financing, even as competitive intensity in operational renewable assets remains elevated. The management guided for spreads to remain at 2.4-2.5%, with margin stability aided by a diversified borrowing mix and predominantly fixed-rate liabilities, despite some pressure from competitive pricing and forex volatility. On asset quality, it expects credit costs to remain benign, supported by continued resolution progress and strong provisioning; of the 19 stressed projects, 16 (~Rs46.8bn) are already fully provided for, while GS3 PCR remains robust at ~86%. On the forex front, the management indicated that FY26 translation losses were largely notional in nature, while ~97% of foreign borrowings remain hedged. Overall, PFC remains confident about sustaining healthy profitability, supported by resilient spreads, improving asset quality, and a strong capital position.

We tweak our estimates; maintain BUY with revised Mar-27E TP of Rs500

To reflect Q4 developments and management commentary, we trim our estimates. This results in a 4-5% EPS cut over FY27-28E. Regardless, we believe PFC should deliver ~16- 17% RoE and 10% loan growth. We reiterate BUY on PFC and raise Mar-27E TP to Rs500 (implying SA FY28E P/B of ~1.0x).

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