Power Finance Corp is a good bet for long term investment

Power Finance Corporation - share price movement

Power Finance Corporation -Share Price movement
Power Finance Corporation -Share Price movement | Source

Power Finance corporation

Good Q1 results

Power Finance Corporation has produced good Q1 results for the quarter ended 30.06.11 compared to the previous quarter ended 31.03.11. Revenue has increased from Rs.2617 crore to Rs.2907 crore. Net profit has increased from Rs.606 crore to Rs.686 crore. Operating margin zoomed from 31.36% to 97.04%. Net profit margin was more or less flat at 23.60%. The shares of Power Finance Corporation are traded in the stock markets at Rs.145.70 now. In October 2010, they were traded at a high of Rs.379.50. The present share price is close to its yearly low of Rs.130.

$1 billion issue

Power Finance Corporation is planning to raise around Rs.16800 crore through issue of securities. The company has already initiated the process of selling tax-saving infrastructure bonds and tax-free bonds worth Rs.11900 crore. It has also obtained regulatory approval for the issue of medium term notes worth $1 billion (Rs.4900 crore).

Financing to power sector – a big business

Power Finance Corporation provides financing to power sector. The government of India held 89% stake in the company after disinvesting about 10% stake in 2007. Last year, Power Finance Corporation was given infrastructure finance company status. This move enabled the company to mop up funds through issue of tax-free bonds. The company entered capital market in May this year with its Follow up Public Issue (FPO) amounting to 22.96 crore equity shares through book building process. This move was to augment the company’s capital base to ensure requisite capital adequacy norms and to meet future capital needs. As the power sector is expanding fast, the company needs huge funds to cater to its needs. After the issue, the government’s holding in the company was around 73%. The public holding was around 26%.

Lot of opportunities

A lot of opportunities are available for the company to fund the power sector. The demand supply imbalance created by continued economic growth will continue to drive investment in power sector. The power ministry is of the view that raising money in the capital market through tax-free bonds will bring down the borrowing cost of the company by 1.5%.

Good for long term acquisition

The shares of the company are a long term bet at the current market price. It has a healthy asset liability profile, which cushions the company against interest rate risks. But tighter liquidity conditions, rising interest rates and increase in competition could put pressure on the company’s comfortable spreads in future. Power financing remains a focused priority for the government of India and Power Finance Corporation has big sanctions from the government. Bank of America recommended the shares of this company with a ‘buy’ recommendation when its share price was at Rs.211. But now the share price has come down even lower at Rs.145. One can safely acquire the company’s shares at the present price for a long term holding of upto five years. The downward risk is limited upto Rs.130 or Rs.120 only.

Power Finance Corporation

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