Power Finance Corporation posts improvement in asset quality

Power Finance Corporation has posted solid FY 25 results, with Interest Income rising by 16.6% to INR1,050bn. Net Interest Income outpaced, increasing by an impressive 25.6% to INR403.3bn. Consolidated profit rose 15% y/y to INR305.1bn. In addition, the company has reported a notable improvement in asset quality, with Gross NPA declining from 3.02% in FY 24 to 1.64% in FY 25. Net NPA therefore staged a recovery from 0.85% to 0.38% over the same period.

Its Loan asset book increased 12%, reaching INR11,099bn as of March 31, 2025., whereas net worth surged 16% to INR1,551.6bn from INR1,342.9bn as of March 31, 2024.

Power Finance Corporation Ltd., a Maharatna PSU headquartered in New Delhi, India, was incorporated in 1986 as 100%-Govt. owned company. In 2010, RBI recognized the company as an infrastructure finance company, following which GOI shareholding reduced to 56% through an FPO. As a Maharatna CPSE, the group specializes in financial services, primarily providing funds to the power sector for project development, including power generation and distribution. Its business model is central to addressing the energy needs of India, focusing on long-term financial solutions like term loans, equity investments, and capital markets.

Furthermore, PFC increasingly emphasizes financing renewable projects to align with national energy policies promoting sustainability and clean energy transitions.

Increased impetus on the power sector

The Indian power sector is indeed undergoing a significant transformation, driven by the vision of 'Viksit Bharat' and a commitment to sustainable and decarbonized growth. Power Finance Corporation has been on the forefront of this transformation by facilitating the development of critical power infrastructure projects across the nation, along with supporting a quarter of the renewable energy installed capacity.

The Government of India (GOI) plays a pivotal role in shaping the power sector landscape through prudent policy formulation, regulatory oversight, infrastructure development, and financial support. Some of the key recent initiatives include the sanction of the PM-Surya Ghar,

Muft Bijli Yojana, with a total budget of INR750.2bn to install rooftop solar systems and offer complimentary electricity of up to 300 units per month to 10m households; increased allocation of funds to power sector initiatives in budget 2024, with focus on green hydrogen, solar power, and green-energy corridors in line with the renewable energy target for 2030.

Strategic expansion of operations

To augment its reach, Power Finance Corporation has added funding to Logistics and Infrastructure sectors to its business line and already sanctioned and disbursed INR823.3bn and INR70.1bn, respectively as of end-FY 24. In addition, the company is the first Government NBFC to establish a wholly owned subsidiary, PFC Infra Finance IFSC Limited, in the International Financial Services Centre

(IFSC) at GIFT City, Gujarat. This marks an important strategic step towards globalizing the company’s operations and making an impact in the international lending arena.

Decent rise in NII

Power Finance Corporation posted a decent Interest and Dividend Income CAGR of 11% over FY 19-24, reaching INR902bn. Net Interest Income (NII) rose at a CAGR of 12.9% to INR346bn in FY 24. Net profit therefore surged at a CAGR of 14.8% to INR198bn, with margins expanding by 4.1% to 53.3%.

Cash and equivalent remained volatile over the same period, decreasing to INR4.4bn as of end-FY 24 from INR7.3bn as of end- FY 19. In addition, the group reported an increase in total debt from INR5.4tn to INR8.7tn over the same period.

In comparison, L&T Finance, a local peer, posted a lower Interest and Dividend Income CAGR of 2.1% over the same period, reaching INR129bn in FY 24. Net Interest Income rose at a CAGR of 9.5% to INR74.4bn in FY 24. However, net profit remained almost flat with a CAGR of 0.8% to INR23.2bn.

Lower valuation compared to peer

Over the past one year, the company's stock has fallen by approximately 26.2%. In comparison, L&T Finance delivered decent returns of 14.4%. In addition, the company paid an annual dividend of INR15.8 in FY 25, resulting in an attractive dividend yield of 3.8%. Moreover, analysts expect an average dividend yield of 4.2% over the next two years.

The company is trading lower than L&T Finance. Power Finance Corporation is currently trading at a P/B multiple of 1.5x, which is marginally lower than that of L&T Finance (1.6x). However, it is trading higher than its 3-year historical average of 1.2x.

Analysts estimate a net profit CAGR of 6.5% over FY 25-27, reaching INR196.8bn with margins of 75.1% in FY 27, with EPS expected to increase to INR59.9 in FY 27 from INR52.6 in FY 25. Likewise, analysts estimate a net profit CAGR of 20.8% for L&T Finance.

Overall, Power Finance Corporation is poised to play a significant role in shaping up and supporting the power landscape of the country, supported by key government initiatives. In addition, a positive fundamental trajectory and improved asset quality should augur well to attract investors with a long-term horizon. However, the company is prone to a few risks, including asset liability management, foreign currency risk, and credit risk.