Power Finance Corporation Limited (PFC share). Good for long term?

Hi everyone, in this post I’m going to be talking about another PSU stock. Now, this is a large-cap stock meaning that is not that much volatile.

Today I’m going to be analysing Power Corporate Finance Limited.

So like always I’m going to start with the history of the stock, then I’ll talk about the business model, recent financial performance, my personal opinion.

PFC was founded in 1986 as a non-banking financial company (NBFC). It was set up by the Government of India to fund and finance projects in the domestic power sector.

Now the thing about PSUs is that the history of the companies aren’t that great and this is the case with PFC also.

Anyways, PFC aims to promote the development of the power sector by providing finance to low-cost, efficient, and reliable projects. These projects can be both government-organized projects or private.

Well that’s it for the intro. I’ll now talk about the business model.

A comprehensive range of financial products to clients in the power sector:

  • Fund-based financial products including long-term project finance short-term loans, buyer’s line of credit and debt refinancing schemes
  • Non-fund based assistance including default payment guarantees and letters of Comfort
  • Fee-based technical advisory and consultancy services for power sector projects 

Also, important to note here is that in March 2019 PFC acquired 52.6% stake in REC for Rs 14,500 crore. Now REC or Rural Electrification Corporation Limited was a direct competitor to PFC before the acquisition happened.

Now both REC and PFC play a very important and strategic role for Government of India. Therefore it is kind of backed and heavily supported Government of India. That is because again, PFC and REC are the main authorities which can implement or promote power sector policies in their respective areas.

So overall they have a pretty strong position in the market, are hugely supported by Government of India. Also, since it is the power sector that we are talking about. The reforms or changes in policies will always be there.

Talking about financials

The profit % is declining on a year on year basis. However, if you would look at the recent quarterly results. The net profit has increased in june 2020 as compared to march 2020 despite the nationwide lockdown.

Now since PFC and REC deal with lending money and is a NBFC, their Non performing assets percentage has reduced from 8.4% (as on March 2019) to 7.4% as of march 2020.

If you know what are non performing assets then you’d realise how good this is for PFC.

Financially the company is performing quite well and looks quite stable.

Now coming to my personal opinion

I think PFC is good company and a good stock to hold for long term perspective if you’re interested in the NBFC sector.

Do note that NBFC sector is underperforming right now, so you might not witness immediate profitability if you invest in this stock.

Few positives – 

The company has been increasing its market share. The recent acquisition of REC indicates the strong support and backing of Govenrment of India which is a very good sign.

Also, the company has over about 30% of the market share when it comes to NBFCs for power sector. Not only this is huge but finding alternatives to this company can be a challenge. Especially companies which strictly adhere to the goverment policies.

Now if Government of India decides to move away from PFC or reduces its stake in it then it would mean trouble for this company.

Also, another concern is the impact of Non performing assets due to this lockdown. As we might already know many companies are struggling to pay their debts in time or are going bankrupt.

I think PFC is good company and a good stock to hold for long term perspective if you’re interested in the NBFC sector.

Do note that the NBFC sector is underperforming right now, so you might not witness immediate profitability if you invest in this stock.

NIIT Technologies Stock Analysis. Should you invest?

Hi everyone My name is Shantanu and in this post, I’ll talk about a very interesting stock which is also in my watchlist. 

The name of this stock is NIIT Technologies and I’m going to talk about the history of the company first then the business model, financials, and lastly my personal opinion along with the short term technical levels.

Now since NIIT Technologies is a subsidiary of NIIT, I’m going to be covering the history of NIIT majorly in this section.

So NIIT was brought to life by none other than Mr Shiv Nadar who’s the founder of HCL Technologies.

He invested 1 million rupees into NIIT which was founded in 1981 by two IIT Delhi graduates – Mr Pawar and Mr Thadani

In his interview in 2011, Mr Pawar stated that when he was spearheading corporate planning at HCL back in the 80s, he felt this problem of lack of trained IT manpower. He said that bringing people and computers together, was a huge challenge. This was when the idea of setting up NIIT came up.

Now, when setting up NIIT, as always many people tried to convince the founders that this is a wrong idea, and putting money into this idea is more like burning cash.

After months of pondering, he decided to move forward with a franchise model. However, in this case, he modified that model by adding an Indian Tadka.

Now the trick or the tadka was that He would try to get the most respected families in small communities to sign up as his franchisees. As you know Indians put great emphasis on the concept of pride and respect (izzat). And thus by exploiting a simple value, he built a great business which has expanded to US, China and Russia.

Now, as you might know, NIIT runs an educational training business where it trains professionals, in 2002 the company witnessed a surge in revenues from its software production department which was far greater than the revenues earned from their conventional education business.

This led them to setup NIIT Technologies as a separate company which became operational in 2004 and since then they’ve been expanding this business throughout the world.

Pretty interesting right, let’s now talk about their business model

So they offer services like Asset Management and Securities services which includes projects like Order

and Trade Management, Risk Management,

Mutual Funds, etc.

They’ve also been actively involved in developing software for banks example projects can be Client Experience software, Internet Banking and so on.

They’re also involved in making industry-specific software like building an app for internal use and enterprise solutions like application development and management.

Now in 2014 also saw NIIT Technologies foray into two new geographies Latin America and Ireland. This is important right now because this is when they started getting involved in the airline industry.

Now when I say this, what I mean is that NIIT Technologies started developing software for the airline industry. An example of this can be their partnership with an airport in Brazil to implement and transform the Cargo Handling system at that airport. Soon they started undertaking more projects from the airline industry from all over the world and I’ll tell you why I’m telling you about this when I discuss the financials of the company.

So yeah, to sum it up, NIIT technologies offer comprehensive end to end software solutions and services in Application

Development, Managed Services, Cloud Computing, and Business Process

Outsourcing. 

Now I’m going to discuss the financials of the company.

Now, remember I talked about how the company has been actively involved in providing services to the airline industry. Since the pandemic, as you already know that there have been serious implications on the travel and airline industry, the effect of that has also been seen here.

NIIT TECH derives around 13% of its revenue from airlines, and this has dropped to only 5% in the current quarter.

That being said, revenues from other verticals and clients have been pretty stable and are somehow able to compensate for the loss incurred due to airlines.

Now since the unlock and the restart many of the airlines have started working again, so the revenue from the airlines is expected to stabilize.

Liquidity is another one of the strongest points of this company. The company is virtually debt-free.

The company’s revenue and PAT (Profit after Tax) have been also increasing on a year on year basis which is very good.

Now my personal opinion is that the company is no doubt very good. They have been performing really well in terms of financials and their business model is also pretty solid.

One weakness that I can sense is that since belongs to TIER 2 group, the big giants such as TCS, Infosys which belong to Tier 1 can easily outbid for larger projects.

That is the only weakness that I can find and it doesn’t concern me much as the company or the management determined to expand the business by bagging more deals.

They have recently won three large deals in the previous quarter of which one is of US$30 million.

So, as I said, I have this company on my watchlist and I’m going to invest in this sooner or later.

Tagged : /

Is Avanti Feeds good enough for investment?

Hi, guys, my name is Shantanu and today I’m gonna be talking about another very interesting stock. The stocks name is Avanti Feeds.

Let’s start with the history of the stock and why this is so interesting.

So Avanti feeds started in 1993 and during that time they were not at all a thriving business. The shrimp industry was never considered to be a hugely profitable business apparently.

I’ll talk about the business model in detail but for now, just know that Avanti primary business was or is to produce feed for shrimps.

Now, the shrimp industry in India back in the ’90s was competing with the Chinese, Thai and Vietnamese.

Now you should know that Avanti feeds earned their profit when the farmers would buy huge quantities of feed for their shrimps.

Call it luck or chance, in 2009 a disease is known as Early mortality syndrome (EMS) ruined all of 

the shrimp industry of China, Thailand and Vietnam. In the same year, the Indian government allowed the Indian farmers to cultivate a variant of shrimp which consumed less feed, and more importantly, these were absolutely unaffected by the EMS disease.

The outcome, the Indian shrimp industry thrived like anything. Farmers now became more interested in cultivating shrimps and transporting them to the Chinese, Thai and Vietnamese as the supply chain there was severely affected. The stock price of Avanti feeds also rocketed as would have guessed.

In 2012 another wave of EMS hit the Vietnamese market, ruining their supply chain while the demand was huge. Well, Indian farmers came to their rescue and this time also, Avanti feeds rallied and hit record highs.

And like another other business, this business was and isn’t failproof. You see that shrimps are ultimately biological creatures that can get affected by some disease or another. Moreover, the quality of the shrimp also matters.

Hence, Between 2012 and 2018 you would any significant rise in the growth of the numbers of the stock.

In 2018, luck hit again and this time it was not the disease but the sharp reduction in raw materials that Avanti used to produce feed and the shrimps trading at record high prices.

This meant that Avanti feeds were producing for cheap and selling it for high prices.

This reflected in the stock as well and 2018 is considered to be their luckiest year.

Soon are came to normal that is when the supply from China, Thai, Vietnam were able to cope up with the demand and prices of raw materials back to normal, Avanti feeds stock price started to decline.

Now let’s talk about the Business Model

Like I said earlier, the primary business model is to produce feed for shrimps. The company also has a shrimp processing business where it takes the shrimp and adds flavours, mixes it with other ingredients, cooks it and so on and then sells it. The profit margin, in this case, is pretty decent as compared to the shrimp feed business.

The company also has 4 windmills located in Karnataka. It sells the power generated from these windmills to  Karnataka Power Transmission Corporation Limited.

So this is from where they majorly earn their revenues and now let’s talk about the financials.

So Surprisingly in terms of Financials, Avanti feeds is doing pretty well.

It’s profit after tax was increased to ` 28,597.67 Lakhs as against a Profit of ` 22,349.48 Lakhs during the previous financial year.

And this is mainly because the shrimp feed manufacturing and processing business is considered to be a part of the essential services hence the lockdown didn’t make much of impact although the labour and transportation got affected.

The management says that since the lockdown has been lifted, and the operations being returning to their normal state, the numbers would soon jump up.

Regarding debt – 

Long term debt or borrowings or non -current liabilities have been reducing which is a very good sign, however, short term or current liabilities are increasing on a year on year basis.

Personal Opinion

So Avanti Feeds is a very good example of cyclic stocks. Cyclic stocks are those which can be a multibagger for a certain time period whereas at other times they generally don’t perform. 

The company is very good and has a strong balance sheet and the management is also quite strong in terms of decision making. I’ve also read that they are planning to open a hatchery so that will be interesting.

Overall, a good company but highly cyclic in nature. 


If you’d like to discuss stocks or know about such case studies then please join our Telegram group.

Tagged : /