Power Finance Corporation Ltd Q3 FY2024 Concall Summary

Key Takeaways

• Profit up 26%, asset quality clean: Standalone PAT rose on higher interest income and stable provisioning, while net NPA fell below 1% with no new slippages for over a year.
• Growth deliberately smoothed, not slowed: Disbursements were spread evenly across quarters, so the guided 12–15% FY24 loan growth (versus 16% achieved by Q3) reflects strategy, not a demand shortfall.
• Infra pipeline is sanctioned but not yet flowing: ~₹33,000 Crores of infra sanctions have yielded only ~₹2,000 Crores in disbursements so far; most conversion will shift into FY25.
• Competitive moat in large-ticket thermal and hydro: Consortium requirements and bank exposure limits give PFC an upper hand in funding huge projects that other lenders cannot take on.
• What to watch next quarter: Whether the infra disbursement pipeline begins converting, the pace of renewable portfolio build toward the 20% target, and any resolution progress on Lanco Amarkantak and Shiga hydro.

Loan Growth & Disbursement Strategy

• FY24 growth guided to ~15%: Management expects to end the year around 15% loan book growth, consistent with FY23 levels, despite Q3 already showing 16% growth.
• Q4 historically heavy, now deliberately even: In prior years Q4 disbursements were much higher than earlier quarters; this year PFC spread them equally across the year, which is why Q1 showed very strong growth and why the full-year guide appears conservative relative to the 9-month run rate.
• FY25 growth also ~15%: Management guided a similar range for next year, calling 15% on a growing base a realistic and sustainable level.
• Long-term view of 15–20%: Over a 3–5 year horizon, management sees 15–20% growth as achievable, supported by thermal, hydro, renewable, and infrastructure opportunities.
• LPS scheme disbursements will step down: Where installment periods were short (12 months), 100% of the sanctioned amount has already been disbursed; for cases with 36- or 48-month installments, disbursements occur only as installments mature, so the flow will be lower going forward.
• Infra sanctions await pre-commitment conditions: Borrowers must satisfy documentation and pre-disbursement conditions before funds flow; management expects gradual conversion in the current and next financial year.
• RDSS disbursements tied to execution pace: Contracts worth ₹1,28,000 Crores have been awarded and prepaid meters ordered; once orders are placed and execution starts, disbursements will follow, with a pickup expected from FY25.

Parminder Chopra: "we want to have a sustainable growth over a longer period of time... we want to have our disbursements also spread equally over the full year"

Asset Quality & Resolutions

• Net NPA below 1%: Net NPA stood at 0.9% after concentrated resolution efforts, with no new slippages for more than one year.
• Dans Energy resolved outside NCLT: The ₹413 Crores loan was restructured outside the NCLT process, moving the asset out of stage three; a provision reversal of ~₹79 Crores was booked with a 90% recovery rate.
• Lanco Amarkantak: fresh bidding underway: A revised resolution plan was submitted after better offers emerged; lenders ran a fresh bidding process on February 6, 2024, and evaluation is ongoing before submission to NCLT for approval. Provision maintained at 76%, with reversals possible if the new plan is accepted.
• Shiga hydro resolution targeted this year: PFC hopes to finalize a resolution plan for the ~₹500 Crores Shiga hydro project outside NCLT in the current financial year.
• Overall provisions rose despite Dans reversal: Increased provisioning on other stage three assets, reflecting current resolution status of projects, more than offset the Dans Energy reversal.

Margins, Spreads & Competitive Dynamics

• Yield improving with rate cycle: The impact of interest rate increases has started reflecting in yield, which reached 10.02% for 9M FY24, up 10 bps from H1 FY24.
• Spread and NIM within guided range: Spread at 2.55% and NIM at 3.42%, consistent with management's ~2.5% and ~3.5% guidance.
• Lending rates reset with cost of funds: Tight liquidity and hardening interest rates prompted PFC to review and increase its lending rates in line with the higher cost of funds; rates are reviewed quarterly. Reset periods vary from one to five years depending on borrower choice, and all resets will apply the revised card rate.
• Renewable margin pressure versus conventional: The renewable space faces tough competition and margin pressure, while conventional generation, transmission, and distribution carry higher margins. Competitive pressure from multiple funding avenues keeps the spread guidance anchored at ~2.5%.
• Thermal and hydro: consortium dynamics favor PFC: Project costs are too large for any single lender, so consortiums are required. Banks face sectoral limits, exposure limits, and individual company exposure limits, while PFC can take the larger exposures, giving it an upper hand in such projects.

Parminder Chopra: "the cost of project is huge so it will not be possible for any of the lenders to fund it on standalone basis so there has to be consortium and the type of exposures we can take none of the other financers are able to take so we as a group I think have an upper hand in funding of the thermal project or be it the hydro project"

New Business & Diversification

• IFSC subsidiary approved: RBI granted approval in January 2024 for a wholly owned subsidiary in IFSC Gift City, Gujarat; PFC will be the first government NBFC to enter IFSC, aiming to unlock international lending opportunities.
• Infrastructure sector build-out: Sanctions of ~₹33,000 Crores have been made in infrastructure (roads, refineries, metros, ports, waste-to-energy, energy transition, e-vehicles), but disbursements are only ~₹2,000 Crores so far. Most conversion will flow into FY25. PFC is building employee capabilities through advanced training and plans to bring external sector experts onto its rolls.
• Renewable portfolio target of 20%: Renewable assets currently represent ~12% of the total portfolio; management aims to grow this to ~20% over the next two to three years.
• Suryoday Yojana (rooftop solar): The board approved funding of ₹1.70 lakh Crores, with a potential funding opportunity of ₹1.2 lakh Crores in coming years across the entire solar value chain, including equipment manufacturing and installation. PFC has already sanctioned loans for solar equipment plants by top manufacturers.
• Thermal and hydro pipeline: The Ministry of Power expects new thermal capacity additions and restarting of stalled projects in the next 2–3 years; government focus on hydro, especially in Arunachal Pradesh and the northeast, is expected to generate a good share of funding opportunities for PFC.
• Offshore wind and hydrogen: Viability gap funding for offshore wind was provided in the budget, and hydrogen progress is advancing; taken together with other segments, management believes 15% growth is sustainable.

Parminder Chopra: "PFC will be the first government NBFC to foray into IFSC. PFC's IFSC subsidiary will unlock avenues for us in international lending space and help in taking PFC's brand global."

Regulatory & Compliance

• LCR penalty for interpretation difference: RBI imposed a penalty of ₹8.80 lakh for non-compliance with liquidity risk management norms; the issue arose because PFC considered fixed deposits as eligible HQLA for LCR computation, while RBI did not. PFC is aligning its approach with RBI's interpretation.
• Credit concentration norms: ample headroom: The RBI's January 15, 2024 draft circular brings government NBFCs like PFC under credit concentration norms. Management stated there is ample headroom: ~₹12.8 lakh Crores of available exposure on the total government book, and over ₹90,000 Crores available for the top 10 borrowers. State government guaranteed loans are excluded from exposure limits, providing even more flexibility.

Parminder Chopra: "Currently we have ample headroom for lending for our government book also. We have around Rs.12.8 lakh Crores of available exposure on our total government book."

Guidance & Commitments

Key Metrics