This PSU co joins Rs 1-trillion m-cap club; zooms 127% in so far in 2023

Shares of Power Finance Corporation (PFC) joined the Rs 1-trillion market capitalisation club as the stock of the state-owned financial institution company rallied nearly 8 per cent, hitting a new high on the BSE in Monday’s intra-day trade. In comparison, the S&P BSE Sensex was down 0.5 per cent at 64,936 at 12:26 PM.

Currently, PFC's market captialsation stands at Rs 1.05 trillion, the BSE data shows.

Thus far in the calendar year 2023 (CY23), the stock price of PFC has zoomed 127 per cent on strong business performance and healthy outlook. The S&P BSE Sensex, meanwhile, has gained 6 per cent so far in CY23.

PFC is a government company engaged in extending financial assistance to power, logistics, and infrastructure sector, and is a Systemically Important Non-Deposit taking Non-Banking Financial Company (SI-NBFC) registered with the Reserve Bank of India (RBI) as an Infrastructure Finance Company (IFC). The company being a Government-owned NBFC is placed in the middle layer under framework for Scale Based Regulation for NBFCs issued by RBI.

PFC is a critical vehicle for the government to drive policy/ scheme implementation in the power sector, and has been the nodal agency for various government schemes (e.g., UMPP, RDSS/ IPDS/ (RAPDRP subsumed in it), Liquidity Infusion Scheme (LIS) and Late Payment Surcharge Scheme (LPS), and as a bid process coordinator through its wholly-owned subsidiary PFC Consulting Limited for the ITP scheme.

Over the years, PFC has always been on the forefront of innovation, be it funding emerging areas such as Solar, Wind, EV etc. or tapping international markets through green bond. It has now added Logistics and Infrastructure funding to its line of business which will form part of the company’s future lending business going forward.

Last month, rating agency Moody’s has affirmed "Baa3" local and foreign currency issuer ratings for PFC and REC Ltd (REC), expecting a further decline in the problem loans ratio as the state-owned firms resolve legacy assets. "Baa3" is an investment grade rating with moderate credit risk.

Moody’s maintained a stable outlook on the ratings, reflecting its expectation that the companies' credit fundamentals will remain stable, and they will continue receiving strong support from the government.

The companies' asset quality is expected to remain stable due to their increasing loan exposure to state power distribution companies (discoms). The government's Liquidity Infusion Scheme, Late Payment Surcharge Rule, and Revamped Distribution Sector Scheme for discoms are enhancing their cash flows and reducing their leverage. Additionally, state government guarantees and subsidies to discoms will mitigate credit risks for PFC and REC.  
 

Meanwhile, to address growing power demand, additional capacity would be needed. The Government of India plans to double the installed capacity with addition of around 500 GW of capacity by 2032, with 87 per cent from non-fossil fuel sources and 13 per cent from fossil fuels, requiring an estimated investment of approximately Rs 31 trillion.

An integral aspect within the power sector value chain is the role of distribution companies (Discoms). Over recent years, Discoms have grappled with financial and operational challenges, which have put a strain on the entire power sector value chain.

However, a transformative shift is underway. The government has undertaken significant reforms for Discoms over the past two years. The impact of these reformative measures, as part of the Revamped Distribution Sector Scheme (RDSS), is evident, PFC said in its FY23 annual report.

All India level AT&C losses are at 16.5 per cent in FY22, which is significantly lower than FY21 figure of 21.5 per cent. The ACS-ARR gap, which is the cash-adjusted revenue gap per unit of electricity sold, significantly improved to 40 paise per unit in FY22 compared to 89 paise per unit in FY21, the company said.