Release Date: May 15, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Power Finance Corp Ltd (BOM:532810, Financial) reported a consolidated PAT of INR 26,461 crores for FY 2024, marking a 25% increase from the previous year.
- The company's consolidated balance sheet size reached INR 10.40 lakh crores, maintaining its position as the largest NBFC group in India.
- The net NPA ratio improved to 0.85% from 1.03% in FY 2023, indicating better asset quality.
- The Board proposed a final dividend of INR 2.5 per share, bringing the total dividend for FY 2024 to INR 13.50 per share.
- Power Finance Corp Ltd (BOM:532810) achieved a net interest margin of 3.46% and a spread of 2.64%, driven by stable yield and reduced cost of funds.
Negative Points
- The company faces potential risks from new RBI draft guidelines for projects under implementation, which could impact provisioning requirements.
- Despite significant provisioning, the company still has a total NPA book of INR 16,000 crores, with 21 stressed projects.
- The company's growth strategy appears conservative, with a loan growth target of 12% to 15%, despite significant opportunities in the power sector.
- There are concerns about the impact of exchange rate fluctuations on the company's financials, despite hedging efforts.
- The company has not yet reversed provisions for certain large accounts like LANCO AMARKANTAK, pending final NCLT approval.
Q & A Highlights
Q: Can you clarify how much of your DISCOM and short-term loans would be considered as project finance under the new RBI regulations? Also, does your loan growth guidance account for the upcoming thermal CapEx?
A: Around 70% of our DISCOM portfolio is under schemes like LPS, which are non-project loans and thus not subject to the new RBI guidelines. Regarding thermal CapEx, most of it is under NTPC, which is not a borrower from PFC. However, we are open to funding state projects and ongoing disbursements for sanctioned projects.
Q: Are there any significant opportunities to reduce borrowing costs in the next 1-2 years?
A: We have opportunities to retire high-cost loans, primarily term loans from banks, which have prepayment options. This could lead to a reduction in borrowing costs as banks may lend to us at lower rates after prepayment.
Q: What are the significant risks you foresee in the next 1-2 years?
A: Major risks include regulatory changes, such as the new RBI guidelines, and significant fluctuations in exchange rates. However, we have built sufficient provisioning cushions to mitigate these risks.
Q: Why haven't you taken provision reversals on the LANCO AMARKANTAK account like your peers?
A: We will review provisions once the final NCLT approval is received and the resolution plan is implemented. We maintain a consistent policy of reviewing provisions at that stage.
Q: Why is there a conservative growth estimate of 12-15% despite significant funding opportunities in the power sector?
A: Our growth estimates are realistic and sustainable over the long term. We aim to build a resilient loan book that can sustain PFC's future. While we are open to funding commercially viable projects, we prioritize long-term stability.
Q: Can you elaborate on the potential impact of the new RBI draft guidelines on provisioning?
A: The guidelines are still being discussed, and more clarity is needed. Currently, we maintain an average combined provision of nearly 0.85% on Stage 1 and Stage 2 assets. Any additional provisioning required will not have an immediate impact on profitability.
Q: What are your thoughts on the potential for reducing T&D losses to single digits with the installation of smart meters?
A: Significant reduction in T&D losses has already been achieved, with some states experiencing single-digit losses. The average for the country is distorted by a few states, but overall, we are moving towards single-digit losses.
Q: How is PFC positioned to capture the benefits of India's inclusion in the JPMorgan index and the rupee advantages?
A: We expect valuations to improve post-results and with the overall positive power sector scenario. However, the market for raising funds in rupees from outside India is still developing, and it must be commercially viable for both parties.
Q: What are the challenges and potential downsides to India's energy transition story?
A: Major challenges include scaling up RE capacity addition, integrating adequate storage capacity, and securing low-cost funds for emerging technologies. These challenges need to be addressed to achieve the 2030 targets.
Q: How does PFC plan to support the growth of hydropower in India?
A: The government has renewed its focus on hydropower, with significant projects planned in states like Arunachal Pradesh. PFC will continue to support these initiatives, contributing to the overall energy mix and stability.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
