Power Finance Corporation Limited Company Analysis

Industry Profile  :  There are many measure of development. Per capita Income, GDP unemployment rate even infant mortality also.  one out of it is use and availability of energy. This is directly indirectly touching many aspects of growth. Power is important for infrastructure. For development of infrastructure you need Metal, Mining, Power, Human resource. It generate Employment. facilitate many opportunity for development. Large factory manufacturing cement also need power, Car maker also need it. Hospitals need it and so does Farmers. For financing such thing is very crucial and vital for Development. As there is large risk involved in it like time taken for return generating, possibility of insolvency of borrower , many times Private players hesitate to lend or ask for heavy return. That makes it govt dominating sector. Given the various constraints on government, primarily the financial ones, private participation in power sector is likely to increase sharply. Among developed nations, most of the time, utilities like power is coming under Private companies and so for building new power generation facilities is managed by that companies.

NBFC or non banking Finance Company is playing key role in economy like India. As per definition they are companies providing certain banking services. As per RBI Definition

A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by Government or local authority or other marketable securities of a like nature, leasing, hire-purchase, insurance business, chit business but does not include any institution whose principal business is that of agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or providing any services and sale/purchase/construction of immovable property.

In India, they are regulated under RBI within the framework of the [[Reserve Bank of India Act, 1934]] (Chapter III-B) and the directions issued by it. there are major restrictions on NBFC about Collecting deposits and doing business. There are 8 major types of NBFCs in india.

  1. Asset finance company. The company doing business in financing of physical assets supporting productive or economic work. In simple word they are companies financing for tractor, Vehicle for agriculture lathe machines, cranes, generator sets, earth moving and material handling equipment, moving on own power and general purpose industrial machines.
  2. Investment company : The company like mutual Fund, Holding companies in some cases or Private equity Company.
  3. Loan Company : The company having buisness of giving loans but other than Asset finance company. Like Personal Loan, Housing Finance companies.
  4. Infrastructure Finance Companies : Companies Financing Infrastructure. Again, RBI kept Strict regulations on them. Infrastructure finance companies deploys a minimum of three-fourths of their total assets in infrastructure loans. The net owned funds are more than 300 crores and a minimum crediting rating of ‘A’ and the Capital to Risk-Weighted Assets Ratio is 15%. Best example is IDFC, though now they are owned one bank, but basically they are one Infrastructure finance company. Another are India Infrastructure finance Company limited ( IIFCL), Infrastructure Finance corporation of India (IFCI) and Power Finance Corporation (PFC ).
  5. Infrastructure Debt Fund Non Banking Finance Company aka IDF – NBFC : If you are unaware about it then yes they exist. India Infra Fund is best example managed by IDFC. IDF-NBFC is a company registered as NBFC to facilitate the flow of long term debt into infrastructure projects. IDF-NBFC raise resources through Multiple-Currency bonds of minimum 5-year maturity. Only Infrastructure Finance Companies (IFC) can sponsor IDF-NBFCs.
  6. NBFC FACTORS : One another large type of NBFC in India. Factoring is type of working capital financing. SBI Factor and Canara factor are some examples.
  7. Gold Loan NBFC : You cant ignore this type in India. Over the years, gold loan NBFCs witnessed an upsurge in Indian financial market, owing mainly to the recent period of appreciation in gold price and consequent increase in the demand for gold loan by all sections of society, especially the poor and middle class to make ends meet. Though there are many NBFCs offering gold loans in India, about 95 per cent of the gold loan business is handled by three Kerala based companies, viz., Muthoot Finance, Manapuram Finance and Muthoot Fincorp. Growth of gold loan NBFCs eventuating from various factors including Asset Under Management (AUM), number of branches, and also the number of customers etc.
  8. Residuary Non Banking Finance Company : All famous for Sahara case as it is a company and has as its principal business the receiving of deposits, under any scheme or arrangement or in any other manner and not being Investment, Asset Financing, Loan Company. So you can do so many business. Nowadays There are not many of them and maybe restricted to exist, they were main accuse in many Frauds.

Company Profile  : Based in New Delhi, the company was incorporated in 1986 and is navaratna CPSE. PFC is under the administrative control of the Ministry of Power. The company was classified as an Infrastructure Finance Company by the RBI on 28th July,2010.  PFC has been providing financial assistance to power projects across India including generation, transmission, distribution and RM&U projects. Recently, it has forayed into financing of other infrastructure projects which have backward linkages to the power sector like coal mine development, fuel transportation, oil & gas pipelines etc.

The company have Financial and Non Financial policies for power sector. In financial Policies, it gives Rupee term loan, Foreign currency term loan and short term loan. The company also having Non financial policies like Financial Consulting, Financial Products, Investment Banking, Loan Management, Linkage Management. The customers or clients of the company includes State Electricity Boards, State sector power utilities, Central sector power utilities and Private sector companies.

Shareholding Pattern  :  Govt of India Being promoter hold 66.35%. 4.33% held by mutual Funds. 1.21% held by financial institutions. 7.02% held by Insurance companies. 15.41% held by Foreign investors. 5.7% held by General public.

Financials and Ratios  : 

 2010 - 112011 - 122012 - 132013 - 142014 - 152015 - 162016 - 17
Loan book87,423.69112,016.92142,494.64168,792.11197,842.91200,036.08200,333.01
ROE17.2514.6418.3719.7918.4917.095.83
ROA2.502.232.602.792.602.470.82
Efficiency1.27%2.08%1.87%3.62%4.38%7.37%20.26%
Book Value132.28156.88182.23207.38244.08270.95138.14
Dividend Per Share56799.1013.905
EPS22.8223.4133.4841.0445.1546.318.05

Future Prospectus  :  Recently Power sector was going from painful time ad that was visible from Ratio. Reduced Efficiency, Lowerd Dividend, Low EPS. As the govt is concentrating of infrastructue and as India also planning to push Electric Vehicle, Strong Power sector is one important element. In that way, PFC is one important stock which keeping good dividend yield.

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About Ashutosh Tilak

Tracking Indian Capital Market since 2010. Finance Student, On this blog I am writing about finance and Investing. You can contact me analystashu@gmail.com or @androidashu & @InsideFinanc on twitter