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.