Maharatna CPSE In Power Sector Offering 9.98% Dividend Yield, Buy Stock For 59% Return

Top brokerage firm ICICI Securities has given a buy rating to the stock of Power Finance. At present, the stock is offering a 9.98% dividend yield. Additionally, yesterday, the Maharatna CPSE announced a second interim dividend of Rs. 3 per share, (35% payout of consolidated PAT in H1FY23) for FY23. November 25 has been fixed as the record date.

Stock To Buy: Target Price

The Current Market Price (CMP) of Power Finance is around Rs. 120. ICICI Securities has estimated a Target Price for the stock at Rs. 191. This stock has the potential to give a 59% return, in the upcoming 12 months. It is a large-cap stock with a market capitalization of Rs. 31,760 crore.

Stock Outlook
Current Market Price (CMP)	Rs. 120
Target Price	Rs. 191
Potential Upside	59.00%
52-week high share price	Rs. 142.30
52-week low share price	Rs. 97.10

Stock Valuation

According to ICICI Securities, "Provisioning release of Rs. 16 bn on stress resolution was utilised to raise coverage on stage-1/2 assets. Drawing down from the sanction pipeline, disbursements gained traction. Incremental sanctions under various power schemes revive hope on growth gathering pace gradually. Hedging proportion was improved to 68% (vs 44% YoY) to minimise the impact of rupee depreciation and it booked forex translation loss of Rs. 6.5bn. Maintain buy with an unchanged target price of Rs. 191."

Strong Q2 Earnings

Drawing down from robust sanction pipeline, disbursements gained traction growing 21% YoY and 270% QoQ (on a low base) to Rs. 171.5bn led by both generation as well as distribution segments. As a result, loan book was up 1.8% QoQ/1.3% YoY at Rs. 3.76trn. Power Finance Corporation's (PFC) Q2FY23 earnings surpassed I-Sec estimates buoyed by provisioning release of Rs16bn on stress resolution and dividend income of Rs. 5.11bn.

CRAR sustained above 24%

The company has been focusing on building an adequate capital buffer. CRAR was steady at 24.29% with tier-I capital at 21.13% (20.95%/20.00%/19.07%/18.42%/17.56% in Q1FY23/Q4/Q3/Q2/Q1FY22) and tier-II capital at 3.16% (vs 3.38% QoQ). We believe PFC will continue with its policy of declaring dividend equivalent to 30% of earnings, or 5% of net worth, whichever is higher.

Disclaimer

The above stock was picked from the brokerage report of ICICI Securities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.