35% Dividend Payout: Maharatna NBFC Turned Ex-Dividend; 33% Potential Upside Seen In Stock

The financial backbone of India's power sector, Power Finance Corp (PFC) has turned ex-dividend ahead of its reward of 35% interim dividend payout. Currently, PFC stock is at 3.11% and tumbled on Tuesday. Nonetheless, there is the potential for a 33% upside in PFC shares due to steady growth visibility, stable margins and continued asset resolutions.

On BSE, PFC share price ended at Rs 426.05 apiece, down by 1.16% with a market cap of Rs 1,40,600.84 crore.

Despite the latest drop, PFC is a multi-bagger with gains of 280.40% from its 52-week low of Rs 112 apiece. The stock's 52-week high is at Rs 477.80 apiece.

PFC has declared a second interim dividend of 35% amounting to Rs 3.50 per equity share (subject to deduction of TDS) on the face value of the paid-up equity shares of 10/- each for FY 2023-24.

The company fixed February 20th as the record date to ascertain the eligibility of shareholders for payment of the second Interim Dividend for the FY 2023-24. While PFC plans to pay this dividend on or before March 9, 2024.

PFC Share Price Target:

In its latest research report, Elara Capital pointed out that PFC's Q3 PAT at INR 33.8bn was in-line (INR 34.3bn estimated), on healthy NII but QoQ growth pared 12% on lower dividend income, exchange losses and optically higher provisions (due to write-backs/reversals in the base quarter). NIMs at 3.4% stood a tad higher (5bps QoQ), led by a marginal uptick in yields with the transmission of high funding costs to borrowers.

Also, Elara's note added, that loans were optically lower due to a high base effect, yet POWF witnessed a healthy 16% YoY traction led by nonpower, renewables and distribution segments. Management is upbeat on renewable funding opportunity, largely led by recent PM Suryodaya Yojana for rooftop solar financing, with a subsidiary as the nodal agency.

As per Elara, POWF expects growth in renewables to be led by equipment manufacturers of solar, and hydro projects, and continued distribution traction. And non-power growth may be accelerated by metro, port and infra projects underscoring robust business visibility. The brokerage expects a 15% loan CAGR in FY24E-26E.

Further, Elara's note said, "While DANS Energy (INR 4bn) was resolved in Q3, a hydro project may be resolved in Q4. Provision of LANCO project taken in the book was 76%. Thus, we are GNPA estimates to 3.0-2.8% for FY25E/26E and expect credit cost estimates below average 20bps with sizeable write-backs/recoveries on the horizon (expect 10%-20%)."

On the valuation, Elara said, "We raise FY24E-26E estimates and core book multiple to 1.7x (earlier 0.9x) as POWF has steady growth visibility, stable margins and continued asset resolutions. Despite the robust rally, we still foresee a 21% upside from current levels as POWF rides the asset quality downcycle with government impetus-led growth traction. We reiterate BUY with raised SoTP-TP of INR 569 from INR 343, on 1.7x PABV."

From the current market price to Elara's TP, there is a potential of 33.55% upside in PFC in the near term.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author or Greynium Information Technologies. The author, the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.In advises users to consult with certified experts before making any investment decision.