Power Finance Corporation

India | Diversified Financials 27 June 2023
Initiating Coverage
Power Finance Corporation

Power juggernaut on roll Rating: Buy
Growth edifice: 1.5x loanbook expansion to ~INR 6tn by FY26E Target Price: INR 326
Upside: 63%
Power financiers stand at the cusp of inflection. Macroeconomic
CMP: INR 200 (as on 26 June 2023)
stability, sizeable power sector capex, increased GoI thrust on power
Global Markets Research
reforms and strengthening balance sheet of power value chain Key data
participants present a robust lending story. The planned power sector Bloomberg /Reuters Code POWF IN/PWFC.BO
capex per se is expected to create a financing opportunity of INR 980bn Current /Dil Shares O/S (mn) 2,640/2,640
by FY30E from ~INR 600bn in FY23, growing at a 7% CAGR. This Mkt Cap (INR bn/USD mn) 528/6,431
translates into 15% annual growth for Power Finance Corporation Daily Volume (3M NSE Avg) 10,102,203
(POWF IN) in the next five years. POWF’s loan composition is correlated Face Value (INR) 10
with GOI initiatives, distribution, and renewables alongside 1 USD = INR 82
diversification into green hydrogen, infrastructure, eMobility, and Note: *as on 26 June 2023; Source: Bloomberg
nuclear to propel the next growth phase. The business portfolio of Price & Volume
POWF+REC combine should have a competitive edge in infra financing
250 40
at a time when liquidity tightness would restrict bank credit expansion.
200 30
Hence, we expect loans to grow ~1.5x to ~ INR 6tn over FY23-26E.
150 20
Rerating drivers: rapid asset quality improvement of 3.5% in FY24E
100 10
GNPA stand at 3.9% in FY23, a six-year low with chunky assets
50 0
resolutions of INR 171bn over FY20-23 led by government initiatives. Jun-22 Sep-22 Dec-22 Mar-23 Jun-23
That said, there lies further scope for asset quality improvement through Vol. in mn (RHS)
catalysts, viz, 1) likely resolution of three NPA accounts worth ~INR Power Finance Corporation (LHS)
86.8bn, namely KSK Mahanadi, Sinnar Thermal & Lanco Amarkantak, 2) Source: Bloomberg
INR 26bn resolution outside NCLT, 3) negligible delinquency in new Shareholding (%) Q1FY23 Q2FY23 Q3FY23 Q4FY23
portfolios, given limited disbursements to date. As a result, expect GNPA Promoter 56.0 56.0 56.0 56.0
to decline to a multi-year low of 3.5% in FY24E, later stabilize at 4.0%. Institutional Investor 29.0 34.1 34.8 35.2
Other Investor 6.9 2.0 2.1 2.0
Additional boosters: sustain NIM at 3.7% with a high ROE of ~17% General Public 8.2 7.9 7.1 6.8
The company stands poised to deliver robust ROE of ~17%, ROA of 2.8% Source: BSE
over FY23-25E, but this time on the back of: 1) growth of 12% YoY at Price performance (%) 3M 6M 12M
steady-state NIM at 3.7% by FY25E with diversified loan mix, effective Nifty 10.3 3.8 19.1
liability management, likely repricing benefits & sustained disbursement Power Finance Corporation 34.9 46.6 94.9
momentum, and 2) steady credit costs at 12-18bp over FY23-25E. Source: Bloomberg
Valuation
In our view, the next round of valuation rerating is an inevitable outcome
Price performance
of the power financing juggernaut riding on macro tailwinds (high power
250
capex, GoI initiatives & subsidies), diversifying loan growth avenues,
Rebased to 100
accelerating asset quality resolutions and stable spread. A consistently high 200
ROE and dividend play story would be propped by strengthening credit 150
traction and quality. We expect a 12% loan book CAGR over FY23-25E,
100
with a 14% NII CAGR, a 50-60bp opex-AUM ratio, less than 20bp credit cost
translating into a ROA of ~2.8%, and a ROE of ~17%. We initiate on POWF 50
Jun-22 Sep-22 Dec-22 Mar-23 Jun-23
with a Buy rating with a TP of INR 326 based on a SOTP method, arriving
Power Finance Corporation Sensex
a core book multiple of 0.8x FY25E P/ABV and 52.6% REC’s value (post
Source: Bloomberg
holding company discount). Our TP implies 63% upside from current levels.
Key financials
YE NIM YoY PPoP YoY PAT YoY EPS Core RoE RoA P/E P/ABV
March (INR mn) (%) (INR mn) (%) (INR mn) (%) (INR) (%) (%) (x) (x)
FY22 140,299 8.3 144,498 5.4 100,219 18.7 38.0 17.9 2.7 5.3 0.9
FY23 143,627 2.4 138,744 (4.0) 116,055 15.8 44.0 18.2 2.9 4.5 0.8
FY24E 164,790 14.7 172,320 24.2 124,786 7.5 47.3 16.8 2.8 4.2 0.7
FY25E 187,211 13.6 192,941 12.0 137,430 10.1 52.1 15.7 2.7 3.8 0.6
Note: pricing as on 26 June 2023; Source: Company, Elara Securities Estimate
Shweta Daptardar • shweta.daptardar@elaracapital.com • +91 22 6164 8559

Nishit Vora • nishit.vora@elaracapital.com • +91 22 4204 8634
Himanshu Dhyawala • himanshu.dhyawala@elaracapital.com • +91 22 4204 8661
Elara Securities (India) Private Limited
Valuation trigger Investment summary

Credit cost GNPA to stabilize at ▪ Robust power sector outlook and key
sustaining at 4.0% by FY25E
350 reforms pave way for POWF’s growth
12-18bp over 3
300 FY23-25E story with financing opportunity of INR
Stock price (INR)
2
250 1 979bn by FY30E and 1.5x loan book
200
boost to ~INR 6tn over FY23-26E
150
100 Easing off of liquidity
conditions and ▪ Steady-state NIM of 3.7% by FY25E, led
50 benign interest rates by effective liability management, likely
0
repricing benefits and sustained
Jun-22
Dec-22
Apr-23
Jun-23
Dec-23
Apr-24
Jun-24
Dec-24
Apr-25
Jun-25
Aug-22
Aug-23
Aug-24
Feb-23
Feb-24
Feb-25
Oct-22
Oct-23
Oct-24
disbursement momentum
Projected TP (INR) ▪ Chunky asset resolution under and
Source: Bloomberg, Elara Securities Estimate outside NCLT, and negligible
delinquency in new portfolios would
Core POWF business valuation at 0.8x PABV FY25E
result in GNPA declining to multi-year
POWF: (FY25E) (INR)
lows of 3.5% in FY24E and later stabilize
Fair price - EVA (Enterprise value method) 125.0
at 4.0% from FY25E
Fair price - BV (2-stage Gordon growth model) 415.4
Valuation trigger
Average price (average of above two) 270.2
Target P/ABV (x) 0.8 ▪ Credit cost sustaining at 12-18bp over
Target P/E (x) 5.2 FY23-25E
Note: Pricing as on 26 June 2023: Source: Elara Securities Estimate ▪ GNPA to stabilize at 4.0% by FY25E
SOTP valuation at INR 326 offerng 63% upside
▪ Easing off of liquidity conditions and
Multiple &
(FY25E) Net worth (INR mn) benign interest rates
shareholding
A) Value of POWF 944,238 0.8x 768,983 Key risks
B) REC 266,985 52.6% 140,434
▪ Slow pace of bad asset resolution
C) Less: 35% holding discount 49,152
D) Net value of REC (B-C) 91,282 ▪ Economic downturn
E) Total value of POWF (A+D) 860,265 Our assumptions
F) Outstanding shares of POWF (mn) 2,640 ▪ Loan book CAGR of 12% over FY23-25E,
G) Target Price (INR) (E/F) 326 with a 14% NII CAGR, and a 50-60bp
H) Upside (%) 63.0 opex-AUM ratio
I) CMP (INR) 200
▪ Disbursement CAGR of 22% over FY23-
Note: Pricing as on 26 June 2023; Source: Elara Securities Estimate
25E
Valuations does not fully price in strong growth and sustainable
▪ ROE of ~17% and a ROA of 2.8% over
healthy asset quality prospects
FY23-25E
1.2
1.0
(x)
0.8 0.8x
0.6 0.6x
0.4 0.4x
0.2
Mar-11
Mar-12
Mar-13
Mar-14
Mar-15
Mar-16
Mar-17
Mar-18
Mar-19
Mar-20
Mar-21
Mar-22
Mar-23
Mar-24
Mar-25
P/BV Stdev 1+ stdev 1- stdev
Source: Bloomberg, Company, Elara Securities Estimate
2 Elara Securities (India) Private Limited

Financials (YE March)

Income statement (INR mn) FY22 FY23 FY24E FY25E
Loans & earnings growth trend
NII 140,299 143,627 164,790 187,211
Other income 18,900 20,203 25,254 30,028 20 18.7
Gross Income 159,199 163,831 190,044 217,239 15.8
15.2
15
Operating expenses 14,701 25,087 17,724 24,298 13.8 12.4
(%)
PPOP 144,498 138,744 172,320 192,941 10 10.1
Provisions 22,221 (2,962) 5,561 9,285
7.5
Diversified Financials
PBT 122,277 141,706 166,759 183,656 5
Tax 22,058 25,652 41,973 46,226 0.2
0
PAT 100,219 116,055 124,786 137,430 FY22 FY23 FY24E FY25E
Loan growth Earnings growth (RHS)
Balance Sheet (INR bn) FY22 FY23 FY24E FY25E
Source: Company, Elara Securities Estimate
Capital 26,401 26,401 26,401 26,401
Reserves and Surplus 567,102 655,622 780,407 917,837
Networth 593,503 682,022 806,808 944,238
Borrowings 3,274,336 3,703,678 4,201,872 4,749,713 Gross and net NPA
Other liabilities 76,261 62,631 79,160 79,492 6 5.6 80
Total Liabilities 3,944,100 4,448,331 5,087,840 5,773,443 5 3.9 4.0
3.5 60
4
(%)
Fixed assets 797 896 947 694
(%)
3 40
1.8 1.7
Loans 3,609,297 4,108,292 4,731,298 5,319,868 2 1.1 1.0 20
Net Current Assets 285,087 291,147 298,928 356,101 1
68.6 56.6
72.7 70.8
Other assets 48,919 47,996 56,667 96,781 0 0
FY22 FY23 FY24E FY25E
Total Assets 3,944,100 4,448,331 5,087,840 5,773,443
% coverage of NPA (RHS)
Gross NPA
Net NPA
Per Share data & Valuation Ratios FY22 FY23 FY24E FY25E
EPS- (INR) 38.0 44.0 47.3 52.1 Source: Company, Elara Securities Estimate
BV (INR) 224.8 258.3 305.6 357.7
ABV- (INR) 204.4 245.5 292.2 331.8
P/E- (x) 5.3 4.5 4.2 3.8 Return ratios
P/ABV-(x) 0.9 0.8 0.7 0.6
Yield and Cost (%) 3.0 2.9 19
Yield on advances 3.9 3.5 3.5 3.5 2.9 18
18.2 2.8
Interest Income/ Avg. assets 3.6 3.2 3.2 3.2 2.8 17.9 2.7 17
(%)
(%)
Net Interest Margin (%) 3.8 3.6 3.7 3.7
2.7 16.8 16
Asset Quality (%) 2.7
Gross NPA 5.6 3.9 3.5 4.0 2.6 15.7 15
Net NPA 1.8 1.1 1.0 1.7 2.5 14

% coverage of NPA 68.6 72.7 70.8 56.6 FY22 FY23 FY24E FY25E
credit cost (calc) 0.6 (0.1) 0.1 0.2 RoAA Core RoE (RHS)
Capital Adequacy Source: Company, Elara Securities Estimate
Tier 1 20.0 22.4 14.4 14.8
CAR 23.5 24.4 16.4 16.8
Growth Rates
Loan growth 0.2 13.8 15.2 12.4
Earnings growth 18.7 15.8 7.5 10.1
Business Ratios
RoAA (%) 2.7 2.9 2.8 2.7
Core RoE (%) 17.9 18.2 16.8 15.7
Leverage (x) 7.0 6.6 6.4 6.2
Note: Pricing as on 26 June 2023; Source: Company, Elara Securities Estimate
Elara Securities (India) Private Limited 3

Growth edifice
❑ Capex, new growth avenues to aid in financing opportunity of INR 980bn by FY30E
❑ Overall loan book to grow ~1.5x to ~ INR 6tn over FY23-26E
❑ Renewables, distribution and new business forays to driver double digit growth
❑ Business portfolio of POWF+REC combine should have a competitive edge in infra financing
Significant capex cycle underway Broad-based next leg of growth
Structural transition underway While the past five-year spell was weak, the next leg of
growth is broad-based with increased levers for POWF to
Power financiers are at the cusp of inflection. grow in the early double-digits. led by:
Macroeconomic stability, planned power sector capex,
increased GOI thrust on reforms and strengthening ▪ Power deficit creates financing opportunity
balance sheet of power value chain participants make a ▪ Consistent annual electricity demand of 7% growth
strong case for a sustained lending growth story.
▪ Capex cycle
Galvanized by GOI initiatives, POWF has been able to
▪ Increased funding of INR 31tn from INR 2.4tn in FY22
capture market opportunities in India’s power sector and
for projected capacity addition
expand its loan portfolio in a disciplined manner. The
planned power sector capex is expected to create a ▪ Change in loan mix with rising incremental thrust on
lending opportunity of INR 979bn in FY30E from ~INR renewables and distribution
600bn in FY23, posting a 7% CAGR over FY23-30E,
▪ Foray into high and new growth areas (namely,
translating into 7% annual growth rate during the next
eMobility spaces, loan extension to logistics &
five years.
infrastructure sectors and loans to install Flue Gas
Desulfurization (FGD) for thermal power plants
Exhibit 1: POWF’s growth story …
▪ Consistent annual electricity demand of 7% growth

▪ Capex cycle
Macro
▪ Increased funding for projected capacity addition of INR 31 tn
▪ Renewables: solar, Offshore and Onshore wind, pumped hydro, battery storage
Generation
▪ Conventional: ammonia co-firing, flue gas desulfurization (FGD), thermal plants
▪ Green corridor
Transmission ▪ Independent transmission projects (ITP)
▪ Late payment surcharge rules (LPS)

Distribution ▪ Revamped distribution sector scheme (RDSS)
▪ Tapping opportunities in eMobility spaces

Others ▪ Newer opportunity for extension of loans to logistics and infrastructure sectors
▪ Lending opportunities w.r.t mandatory installation of FGD for thermal power plants by December 2027
Source: Company presentation, Elara Securities Research

Power deficit to surplus: healthy financing opportunity INR 980bn lending opportunity
POWF has played a lead role in turning a power deficit India’s INR 30.4tn capex pipeline is concentrated in
country into a power surplus one. The accordance of the sectors that are policy-led, such as green energy where
Maharatna status (please refer to Annexure 2 for more POWF can play a major role. Given sustained power
details) by GOI further provides operational and financial demand driven by coal-generated electricity surging to a
autonomy, enabling the company to diversify its new annual record, fresh capex investments in FY22
operations, create pricing power to provide affordable exceeded pre-COVID levels. The GOI has been gradually
loans, in turn, accelerating business growth.
increasing capex for the power sector. which grew 18%
Exhibit 2: Power financiers address power deficit in FY23 to INR 2,865bn, underscoring GOI's commitment
to addressing the country's power requirements. An
0 0 estimated average growth of 11% in capex investment
(2) over FY23-25E would translate into a funding opportunity
(4,000)
(MW)
(4) of INR 737bn by FY25E, in turn, driving 15% annual

growth for POWF.
(%)
(8,000) (6)
(8) Exhibit 4: Lending opportunity of INR 980bn for
(12,000)
(10) POWF
(16,000) (12) Total capex vs POWF growth potential
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY23
FY24*
5,000 20
4,000
(INR bn)
Peak power deficit Peak power deficit (%) 3,000
(%)
10
2,000
Note: FY24 indicates provisional data for April 2023; Source: Ministry of Power, 1,000
Company, Elara Securities Research
0 0
Power demand at 10-year high
FY03
FY11
FY13
FY16
FY18
FY22
FY23E
FY24E
FY25E
FY30E
Power demand reached a 10-year high at 9.5% growth in Total capex investments
FY23, doubling over FY11-20 at an average of 4.5%. While Funding requirement
FY22 saw peak demand surpassing pre-COVID levels, Market potential for POWF
Probable growth for POWF (RHS)
FY24 should witness peak demand hitting life-time highs,
Source: Ministry of Power, Company, Elara Securities Estimate
led by sustained revival in economic activity.
POWF: INR 31tn funding of likely capacity addition
Exhibit 3: Power demand at 10-year highs, exceeding
pre-COVID levels Increased power demand entails significant investment
Electricity Energy Requirement with an estimated funding requirement of INR 14tn over
2,500 FY22-27. Out of this funding, 73% will be allocated toward
FY11-FY16 FY17-FY22 FY23-FY27E
2,000 CAGR: 5% CAGR: 5% CAGR: 7% non-conventional (renewable power) generation
projects, and the rest for conventional. An additional
1,500
(BU)
funding of INR 17tn would be needed over FY27-32E, of

1,000
which ~93% would be utilized toward non-conventional
projects vs 7% for conventional. This aligns with India’s
500 goal to become carbon-neutral by CY70, and thus
0
indicates a growing focus on RE projects. Notably, the
incremental focus on funding renewables by POWF
FY18
FY20
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY19
FY21
FY22
FY23
FY27
suggests the company is well-positioned to capitalize on

the expanding opportunities in the RE sector.
Source: Ministry of Power, Company, Elara Securities Research
The annual power demand has shown an upward trend,

increasing from 831BU in FY10 to 1,512BU in FY23,
posting a CAGR of 5%. The Ministry of Power expects a
power demand CAGR of 7% over FY23-27, due to rising
energy needs and the country's electrification efforts. This
indicates sustained need for capacity expansion to meet
rising demand, which, in turn, will need significant
financing for power projects.

Exhibit 5: INR 31tn funding needed for projected Exhibit 7: Tilting loan mix toward distribution loans
capacity addition POWF -- scheme-wise loan mix
Capacity addition funding 100
INR 14tn INR 17 tn 80

100
60
(%)
80
40
60 73
93 20
(%)
40 0
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY23
20
27 7
0
FY22-FY27 FY27-FY32 Generation Transmission Distribution Others
Conventional Non conventional
Source: Company, Elara Securities Research
With newer business opportunities, POWF has diversified
Change in loan mix with thrust on RE and distribution its portfolio by funding projects in the irrigation, waste to
POWF’s product portfolio encompasses funds-based energy, and water treatment sectors, as well as new and
financial assistance, including long-term project finance, emerging industries, such as eMobility, and utility scale
short-term loans, buyer’s line of credit, underwriting of energy storage. The company has approved financial
debt and debt refinancing schemes as well as non-funds- assistance for projects in the infrastructure sector,
based assistance, including credit enhancement including metro rail, oil refining, bio-ethanol production,
guarantees and letters of comfort. Alongside these and nuclear energy.
lending products, the company also extends end-to-end
allied advisory services, from project conceptualization to
the post-commissioning stage for generation
(conventional & renewables), transmission & distribution
(T&D) projects as well as related renovation and
modernization projects.
That said, the conventional segments share -- generation

+ transmission -- has been declining recently and observed
a sharp fall from 92% in FY11 to 78% in FY22. With
increased GOI thrust for the distribution sector, POWF’s
loan profile stands skewed toward DISCOM with this
segment contributing 38% of the portfolio and
generation declining to 54% at the end of FY23. The
conventional generation loan share has declined from
62% in FY19 to 42% in FY23.
Exhibit 6: Steady reduction in conventional generation loans to 42% of the book in FY23
FY19 FY21 FY23
38%
42%
17% 83%
58%
62%

Key portfolios highlights commendable progress in the generation and

transmission of electricity.
Segment-wise thrust and changing loan mix
Generation portfolio growth
India is witnessing good progress in electricity generation
and transmission, given significant transformation in India’s total installed capacity grew at 13% over FY18-22,
terms of demand (universal electrification) and supply (the paving the way for robust lending opportunities for
advent of green energy), India has been witnessing companies like POWF.
Exhibit 8: Strengthening power financing value chain in traditional portfolios
Generation Transmission Distribution

Increased capacity 93.1% collection 97.2% collection
efficiency efficiency
67% 416GW 0.47mn ckm
March 2023 March 2023 AT&C -19.9% AT&C -16.5%
249GW 0.37mn ckm
ACS-ARR gap- ACS-ARR gap-
March 2014 March 2017
79 paise per unit 40 paise per unit
Definition Definition Definition
Power generation via renewable or Transmission system establishes the link Distribution is the most important link in
conventional sources of energy. Power between source of generation and the the power sector value chain. As the only
generating companies (GENCO) are distribution system, which is connected to interface between utilities and
involved in creating power through load and ultimate consumer consumers, it is the cash register for the
power plants. Funding is to set up power The skewed distribution of resources sector
plants; for day-to-day operations, necessitates development of a robust
Portfolio
funding is provided by POWF and REC. transmission system, including
establishment of inter-regional corridors for The government provides funds to States
Installed capacity through centrally sponsored schemes to
seamless transfer of power from surplus to
As on March 2022, India’s total installed deficit regions improve the distribution sector. The
power generation capacity grew 1.8% schemes include:
The transmission systems are planned and
YoY to 389,179 MW. ▪ IPDS
implemented to evacuate power from
Portfolio generating stations, strengthening of
▪ DDUGJY
Power generation primarily takes place existing transmission network for meeting
projected growth in load & demand and ▪ Pradhan Mantri Sahaj Bijli Har Ghar
via:
optimum utilization of distributed Yojana (Saubhagya) scheme
▪ Thermal: installed capacity of generation resources in different regions.
▪ UDAY
233,507 BU (FY11-22 CAGR of 6.8%)
Installed capacity
▪ RDSS
▪ Renewables: installed capacity of While FY21 saw addition of 16,750 ckm of
101,187 BU (FY11-22 CAGR of transmission lines, surpassing the target by ▪ NSGM
16.7%) 6%, FY22 saw an addition of 14,895 ckm of ▪ LPS
▪ Hydro: installed capacity of 46,701 transmission lines, 22.6% below the target
POWF loan portfolio
BU (FY11-22 CAGR of 2%) Portfolio
▪ Mix: Increase in distribution loans in
▪ Nuclear: installed capacity of 7,784 The transmission requirements could arise
the mix from 34.3% in FY22 to
BU (FY11-22 CAGR of 4.5%) from:
37.6% in FY23
POWF loan portfolio ▪ New generation additions in the system
▪ Growth: Distribution loans rose
▪ Increased demand
▪ Mix: Decline in generation loans in 24% YoY in FY23 to INR 1,586.8bn
the mix from 57% in FY22 to 54% in ▪ System strengthening that may
become necessary to achieve reliability
FY23 as per planning criteria under change
▪ Growth: Generation loans increased load generation scenario
7% YoY in FY23 to INR 2,270bn POWF loan portfolio
▪ Mix: Decline in transmission loans in the
mix from 8.2% in FY22 to 7.4% in FY23
▪ Growth: Transmission loans increased
2% YoY in FY23 to INR 311bn

Exhibit 9: Installed generation capacity at 389GW in Exhibit 11: Generation loans recover to pre-COVID
FY22 levels
500,000 16 Generation loans
2,372
14
2,271
2,270
2,230
2,122
2,108
400,000
12
1,869
344,002
1,717
(MW)
389,179
2,500 30
382,151
1,590
356,100
370,106
10
1,447
300,000
1,268
2,000
1,074
8
(INR bn)
(%)
20
200,000 1,500
843
6
173,626
199,877
223,344
243,029
267,637
298,059
326,849
(%)
10
4 1,000
100,000
2 500 0
0 0 0 (10)
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY19
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY20
FY21
FY22
FY23
Total generation installed capacity YoY Growth Generation Loans YoY Growth (RHS)
Source: Company, Elara Securities Research Source: Company, Elara Securities Research
Generation disbursements recover in FY23 Key GOI initiatives and schemes with POWF as a key
While disbursements toward the generation segment lending partner have resulted in growth of the generation
were healthy barring FY13 and FY15, the period during segment:
FY17-22 was volatile in terms of disbursements traction. ▪ UMPP aiding in generation growth traction: POWF is
FY22-end disbursements for generation were low at INR the nodal agency and Central Electricity Authority
182bn, declining sharply from the per-COVID levels. That (CEA) is the technical partner under the Ministry of
period was hit hard by pandemic-related challenges, Power for ultra mega power projects (UMPP) that are
affecting pending dues to GENCO and TRANSCO by involved in the development of large power projects
DISCOM. Liquidity injection through the Atmanirbhar in India. POWF has set up 19 wholly owned SPV for
Bharat package finally cleared outstanding dues in 14 UMPP in FY22 by securing clearances, acquiring
tranches till FY22, and generation disbursements land & water and obtaining commitment for coal by:
bounced back to INR 340bn by FY23-end. Moreover, 1) improving power generation efficiency by
while more than 110,000MW generation capacity has incorporating state-of-the-art technology and
been added between April 2014 and March 2019, a huge sustainable practices, 2) enhancing competitiveness
capacity creation in renewables and new energy of the power sector by attracting private investment
resources also has opened up new business growth and promoting competition & innovation, and 3)
opportunities, leading to higher disbursements in meeting increased demand for power.
generation during FY22-23.
Pilot Schemes (I and II) launched during FY19-20 wherein
Exhibit 10: Robust growth in generation POWF stands as a nodal agency
disbursements
▪ Scheme I incentivizes GENCO to increase flexibility of
Generation disbursements
coal-based power plants. Scheme II incentivizes
367
360
340
400 120
316
GENCO to improve performance of coal-based power

307
278
277
264
258
256
plants
242
80
224
300
(INR bn)
182
40 ▪ Reducing cost of electricity generation and improving

(%)
200
0 reliability of the power supply
100
(40) ▪ Encouraging integration of RE sources in the power
0 (80) grid by providing a flexible and adaptable power
system
FY20
FY22
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY21
FY23
Generation disbursements YoY Growth (RHS) ▪ Improving efficiency of coal-based power plants and
reducing emissions
Consequently, the generation portfolio at INR 2,270bn ▪ Promoting use of indigenous coal in the power sector
has reverted to pre-COVID levels, growing at 7% YoY after and reducing India's dependence on imported coal
posting an average 5% YoY decline spell over FY21-22. Steady transmission portfolio growth
The Ministry of Power has initiated tariff-based
competitive bidding (TBCB) process to develop and
strengthen the transmission system via private sector

participation to develop transmission capacity in India and Exhibit 14: Transmission mix remains range-bound
strengthen the system through private sector Transmission loans mix
10
8.5
participation. As bid process coordinator, POWF is
8.2
8.1
7.9
7.8
7.6
7.6
7.4
responsible for developing Independent Transmission
6.9
6.9
8
6.3
(%)
6.2
6.1
Projects (ITP) -facilitating strategic advisory and
consultancy services. As on March 31, 2022, 40 SPV, two 6
by POWF and other 38 by POWF Consulting (wholly
4
owned subsidiary) have been established for ITP. During
FY22, a few SPV established for development of 2
transmission projects have been transferred to successful
bidders selected through TBCB. 0
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY23
Barring the challenging pandemic period, the
transmission portfolio has grown at a steady-state rate for Source: Company, Elara Securities Research
POWF. The company registered INR 305bn in
Renewables driving growth
transmission loans in FY22 at a 13.5% CAGR over FY11-22.
It stood at INR 311bn as on FY23. POWF has witnessed significant growth in RE generation
loan portfolio, which is aligned to India’s green energy
Exhibit 12: Volatility in transmission disbursements
goals. During the last fiscal, 44% of POWF’s disbursements
Transmission disbursements
to the generation sector was to non-fossil fuel projects. Its
71
71
80 200 RE assets have posted a CAGR of 32% in the past five years
55
vs 9% growth in total loan assets. The company witnessed

52
150
60
46
(INR bn)
42
doubling of renewable loans in H2FY20, and the growth

36
100
33
31
29
40
(%)
runway thereafter has been steady, with Q4FY23 closing

22
20
20
50
at the highest-ever loans in the renewables segment at
20
0 INR 482bn, up 31% YoY and 22% QoQ.
0 (50)
In FY23, POWF undertook one of the largest financing
FY22
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY23
deals in the RE space by refinancing INR 61.12bn for JSW

Transmission YoY Growth (RHS) Energy for the renewables projects of the Mytrah Group.
Source: Company, Elara Securities Research Exhibit 15: Renewables loan growth to remain strong
Renewable loans
Exhibit 13: Good growth in transmission loans 600 160
140
Transmission loans 500
120
(INR bn)
311
305
293
292
350 35 400 100

255
300 30 80
217
300
(%)
(INR bn)
250 25 60
169
146
135
200 20 200 40
118
111
(%)
99
150 15 20
76
100
100 10 0
50 5 0 (20)
0 0 FY19 FY20 FY21 FY22 FY23
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY23
Renewable YoY Growth (RHS)

Transmission YoY Growth (RHS)
Subsequently, renewables’ share in the generation
portfolio climbed from 15% in Q3FY20 to 21% in Q4FY23
Over the past decade, POWF has retained its 7-8% share as the company continues to ride the rapidly expanding
of transmission loans in the overall mix. renewables story of India.

Exhibit 16: Renewables mix inching up Exhibit 18: Panchamrit elements to meet climate
Renewables loans in total mix targets
25
21.2
500GW non-fossil energy
(%)
20 17.3 capacity by CY30

16.5 1
15.6
15
50% installed capacity from
2 non-fossil fuel-based energy
10
6.9 resources by CY30
5
45% reduction in emissions
3 intensity of GDP by CY30
0 (from CY05 levels)
FY19 FY20 FY21 FY22 FY23
1bn tonnes reduction in
Source: Company, Elara Securities Research 4 CO2 projected carbon emissions
during CY21-30
Three key developments in renewables have bolstered
business growth in the segment.
Achieve net zero target by
5 CY70
▪ More than 80% capacity addition from renewables by
FY32: Power capacity has increased from 159GW in
FY10 to 416GW in FY23. However, despite this Source: Company, Elara Securities Research
growth, existing capacity still falls short of meeting
The upward revision in green energy targets is expected
the country's escalating power requirements. For
to create a USD 10tn funding opportunity, fueling the
FY27E, total capacity is expected to reach 623GW out
green energy financing market where POWF can play a
of which 343GW is renewables; it is likely to reach
major role. The company has already supported RE
866GW out of which 589GW is renewables by FY32E.
capacity addition of 18GW, which is 16% of the country’s
This is projected to roughly increase by ~50GW every
installed renewables capacity.
year, highlighting the ongoing need to expand
power infrastructure to meet rising demand. For ▪ To encourage RE generation, the Ministry of Power
growing power capacity, there will be increased need extended the waiver of ISTS Transmission charges
to finance these projects, wherein POWF and REC and losses for solar- and wind-based projects up to
can capitalize on opportunities and play a vital role by March 2022. Further, to achieve the RE target of
leveraging their expertise and resources to support 175,000MW of capacity by FY22, the MOP issued
funding requirements of these power projects long-term growth trajectory RE purchase obligation
(RPO) for solar as well as non-solar until FY22
Exhibit 17: More than 80% capacity addition by FY32
from renewables ▪ Promote RE sources, such as solar energy for
Renewables capacity addition household electrification in remote and off-grid areas
700
as part of the Pradhan Mantri Sahaj Bijli Har Ghar
600
Yojana (Saubhagya) Scheme launched in FY17 and
500 successfully concluded in FY22
(GW)
400
▪ POWF also has taken steps to become a focal agency,
300 589 and, in turn, receive special dispensation for lending
200 to RE transition
343
100 171 Focus on distribution in line with GOI objectives
0
FY23 FY27E FY32E POWF plays an essential role in the distribution link of the
power finance value chain by funding GOI initiatives for
Source: Company, Elara Securities Estimate distribution companies (DISCOM). As a strategic partner,
the company continues to contribute to be a key financial
▪ During COP26 Glasgow 2021 Summit to combat
partner in the government’s schemes for the power
climate change, India announced its five-pronged
sector.
strategy to achieve 500GW non-fossil fuel generation
capacity by CY30 and meeting 50% of its energy Aligning its business operations to leverage on
requirement through RE sources opportunities emerging from GOI’s thrust in the
distribution space, POWF saw a significant turnaround in
this portfolio in FY18. During FY11-17, it posted 5% loan

book CAGR in the distribution segment, and over FY11-22 POWF is acting as the nodal agency for the ultra-mega
it registered a 44% loan book CAGR in distribution loans. power projects (UMPP) program and the RDSS, IPDS and
FY23 too ended on a high note with the distribution (R-APDRP subsumed in it) and as a bid process
portfolio at INR 1.587bn, up 24% YoY. coordinator through its wholly owned subsidiary PFC
Consulting for the ITP scheme.
Exhibit 19: Strong growth in distribution
disbursements The GOI has supported States by strengthening the
Distribution disbursements distribution system needed to provide 24x7 power supply
to all households through schemes:
600 519 500
400 ▪ Integrated Power Development Scheme (IPDS) for
(INR bn)
428
400 300 developing the urban distribution sector
279
243
(%)
200
279
200 100
▪ Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY)
80 is an integrated scheme for covering aspects of rural
0
18 17 13 17 10 15 16 power distribution
0 (100)
Pradhan Mantri Sahaj Bijli Har Ghar Yojana
FY23
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
▪
(Saubhagya) which aims to achieve universal
Distribution YoY Growth (RHS)
household electrification covering every village and
Source: Company, Elara Securities Research every district in the country,
Exhibit 20: Robust growth in distribution loans ▪ Ujwal DISCOM Assurance Yojana (UDAY) for financial
Distribution lloans turnaround of power DISCOM
1,587
1,800 200
1,280
Revamped Distribution Sector Scheme (RDSS) to

1,123
1,500 ▪
150 improve operational efficiency and financial
(INR bn)
1,200
sustainability of DISCOM
759
631
(%)
900 100
437
▪ Independent Transmission Projects (ITP)

600
201
50
57
▪ Late Payments Surcharge (LPS) scheme

74
71
70
300
61
47
0 0 IPDS (with R-APDRP subsumed in RDSS)

FY13
FY11
FY12
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY23
The program involves execution of 2,000 projects in India,

Distribution YoY Growth (RHS) with total opex of ~INR 600bn (Source: POWF annual
report FY22). The ongoing approved projects under IPDS
and R-APDRP have been subsumed in RDSS. Within this
Exhibit 21: Increasing share of distribution loans in scheme, work in 546 out of 547 sanctioned projects has
the mix been completed with overall physical progress at 99%
34.3
37.6
40 Distribution loans mix (timeline of completion of the Ayodhya Circle is up to

30.3
March 2023). Through the said scheme, a difference is

30 being created in lives of ~100mn urban electricity
(%)
22.0
20.1
consumers across 3,600 towns where power distribution

15.7
20 infrastructure has been upgraded. IT enablement has

been undertaken in smaller towns of 34 DISCOM while
8.2
the enterprise resource planning (ERP) system has been

4.7
10
4.4
3.8
3.7
3.2
3.1
set up and upgraded in 32 DISCOM.

0
Exhibit 22: Financial assistance under IPDS & R-APDRP
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY23
Cumulative Cumulative
Approved GOI funds
Scheme approved GOI fund
cost for disbursed in
(INR bn) cost until disbursed till
Source: Company, Elara Securities Research FY22 FY22
Mar-22 Mar-22
R-APDRP (19.9) 3.9 299.8 135.8
IPDS (24.3) 19.8 288.9 176.4

Revamped Distribution Sector Scheme (RDSS) ▪ Late Payments Surcharge (LPS) scheme: POWF,
The GOI introduced RDSS in June 2021 to improve which acts as a nodal agency, has extended financial
operational health of DISCOM. The scheme was a assistance to DISCOM under the rules to clear
replacement of the R-APDRP (subsumed under the RDSS) outstanding dues. to generators and transmission
and IPDS (subsumed under the R-APDRP). POWF and its companies as part of the LPS scheme introduced by
subsidiary, REC, are the nodal agency for RDSS MOP in June 2022. It has sanctioned INR 479,060mn
implementation and all eligible States & UT have been and INR 167,640mn disbursed in FY’23 under the LPS
equally allocated between POWF and REC. Out of all the rules. Until FY23, POWF has cumulatively sanctioned
States with POWF, action plans for 11 have been INR 10,55,660mn and disbursed INR 3,29,090mn.
approved. Exhibit 23: Sanctions and disbursement trend under
RDSS has a total outlay of INR 3,037.6bn covering smart the LPS scheme
meters and infrastructure projects with ~60% grant worth 140 124
INR 976.3bn from GOI and the rest as counterpart 120
funding from POWF or REC, thereby creating a healthy 100
(INR bn)
lending pipeline. 78
80 66
While INR17bn grant has been released to date, 60
counterpart disbursements under the RDSS to kickstart in 40 24
FY24-end. POWF also supports States by preparing model 13 11
20
bidding documents for automation and ERP projects
0
under the RDSS. Q2FY23 Q3FY23 Q4FY23
▪ National Smart Grid Mission (NSGM) is an initiative by Disbursement Sanctioned
the GOI to modernize power T&D and create an Source: Company, Elara Securities Research
efficient & reliable electricity grid infrastructure in the
country. The scheme has a total outlay of INR 21.1bn Foray into new growth avenues
and budgetary support of INR 6.9bn Tapping opportunities in eMobility
▪ Independent Transmission Projects (ITP): The MOP eMobility adoption is rapidly gaining traction in the
has initiated TBCB process for the development and country, and POWF has recognized the potential of this
strengthening of transmission system through private sector and it has positioning itself as a key financier of
sector participation. As on March 2022, 40 SPV – two green energy projects. In a recent development, the
by POWF and 38 by PFC Consulting -- has been company has sanctioned loans worth INR 6,330mn to
established for ITP Gensol Engineering to acquire 5,000 passenger EV and
1,000 cargo EV (Source: Ministry of Power). By providing
▪ Ujwal DISCOM Assurance Yojana (UDAY):
this funding, POWF aims to contribute toward India's
The scheme aims at improving the financial health of
Nationally Determined Contributions (NDC) goals and
state-owned DISCOM in India. By reducing debt
drive transition toward sustainable transportation.
burden on DISCOM, lowering AT&C Losses, and
Additionally, with the support of the GOI and the UK
helping in the company’s operations
government, POWF has ventured into financing INR
▪ Pradhan Mantri Sahaj Bijli Har Ghar Yojana 5.7bn to deploy 700 electric buses under the FAME-II
(Saubhagya) Scheme: The scheme was closed in initiative, which promotes eMobility platforms.
March 2022, and it was aimed at providing energy
Furthermore, POWF's vision aligns with India's net zero
access to all by last-mile connectivity and electricity
goal, and the company is actively exploring opportunities
connections to remaining unelectrified households in
for debt funding in various segments of the EV ecosystem.
rural and urban areas for achieving complete
This includes financing original equipment manufacturers
household electrification in India
(OEM) and fleet acquisition of EV, battery OEM, and EV
▪ Deen Dayal Upadhyaya Gram Jyoti Yojana charging infrastructure. By diversifying its portfolio and
(DDUGJY): This was a flagship scheme of GOI for focusing on EV-related funding, POWF aims to support
covering all aspects of rural power distribution, the the development of the EV market and contribute to
scheme was closed in March 2022. The objective is to India's sustainable energy objectives.
strengthen sub-T&D network in rural areas and to
Portfolio diversifies to include logistics & infra sectors
provide 24x7 electricity in rural households and
agriculture pumps sets and rural industries Post the MOP approval on 25 August 2022, POWF can
lend up to 30% of its outstanding loan book to logistics

and infrastructure sectors, with the requirement that two- While pandemic-related challenges dampened loan
thirds of new sanctions in a financial year should be traction over FY21-22, FY22 saw a slowdown in business
directed toward power and green energy projects only. as disbursements stood at INR 513bn, down 42% from
By banking on its experience of financing INR 883bn in FY21. Excluding the COVID-19 slowdown,
electromechanical components of infrastructure projects, the company has sustained 11% CAGR in disbursements
over FY11-21 vs 4% CAGR over FY11-22. With continued
POWF stands poised to a gradual buildup of the infra
focus on timely disbursements to power sector entities,
portfolio, in turn, diversifying its asset base. The company
including GENCO, DISCOM, and TRANSCO,
recently approved financial assistance for projects in
disbursements grew at 67% YoY to INR 858bn as on FY23,
infrastructure sectors, including metro rail, oil refining,
led by the base effect. Currently, POWF has a robust
bioethanol production, and nuclear energy amounting to
sanctions pipeline of INR 2,316bn and MOU worth INR
disbursements of INR 10bn till FY23 vs sanctions of INR
900bn with State agencies, which translates into
166.5bn. Key areas where sanctions in newer segments
sustained healthy disbursements over the next few years.
have taken place are ports, irrigation, oil refinery, and fiber
Against this backdrop, we expect a 24% disbursements
net infrastructure. Given a majority of infrastructure
CAGR during FY23-25E.
projects are undertaken by the GOI, this expansion into
infrastructure lending will likely lead to an increased Exhibit 24: Disbursement CAGR of 24% over FY23-25E
concentration of loans to the public sector. Moreover, Disbursement
POWF has been focused on capability-building (signing FY11-FY16 FY23-FY25E
CAGR: 8% FY17-FY22 CAGR: 22%
MOU with RITES for technical assistance & support) and CAGR: -4%
(INR bn)
1,400 80
scaling existing teams to facilitate infrastructure funding. 1,200 60
1,000 40
(%)
Lending in sync with GOI thrust in cutting carbon emissions 800 20
512
600 0
1,077
1,270
To curb carbon emissions, the GOI has been made it 400 (20)
319
398
452
469
447
466
628
643
677
680
883
858
mandatory to install flue gas desulfurization (FGD) 200 (40)
0 (60)
technology for thermal power plants by December 2027.
FY20
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY21
FY22
FY23
FY24E
FY25E
According to report published by the Center of
Atmospheric Sciences, Indian Institute of Technology - Disbursements YoY growth (RHS)
Delhi, FGD can remove a significant percentage of
Sulphur dioxide (SO2) emissions from flue gas in coal-fired
thermal power plants in the range of 50-99.8%, Sanctions traction: POWF has sustained a 10.5% sanctions
depending on the age of the plant. This presents another CAGR over FY11-21. However, total sanctions were down
potential lending opportunity for POWF. As per the by ~69% YoY to INR 516.2bn in FY22 vs INR 1,664bn in
Central Electricity Regulatory Commission and Ministry FY21. This was due to exhaustion of DISCOM-related
report, out of 120,000MW identified capacity based on sanctions.
INR 5.0-6.0mn per MW, while 70% of orders have been Exhibit 25: Sanctions CAGR from flat to 12% during
placed with other lenders, POWF’s lending opportunity FY17-22
stands at INR 400-500bn, as per our analysis. Sanctions
FY11-FY16 FY17-FY22
AUM CAGR of 12.5% over FY23-25E 1,800
CAGR: 1% CAGR: -12%
80
The recent strong AUM traction is the outcome of healthy 1,600 60
(INR bn)
1,400 40
disbursements and strong sanctions pipeline buildup over
(%)
1,200 20
the years. 1,000
0
516
800
600 (20)
1,006
1,162
1,111
1,664
Disbursements trends: During FY11-22, the company 400 (40)

615
594
751
607
608
650
952
disbursed an average of 67% of loans sanctioned, thereby 200 (60)

0 (80)
showcasing a healthy appraisal system. In FY22, this ratio
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
stood as high as 99% on the back of improved

environment led by increased GOI thrust on reforming Sanctions YoY growth (RHS)
SEB and POWF’s rapid resolution of non-performing asset
(NPA).

Given the healthy disbursements trends and sizeable Exhibit 26: AUM CAGR of 12% over FY23-25E
sanctions, POWF has witnessed a 19% loans CAGR over Loan
FY11-16. However, the growth trajectory observed a 6,000
FY11-FY16 FY17-FY22 FY23-FY25E
35
CAGR: 19% CAGR: 9% CAGR: 12%
setback for the following five-year spell over FY17-22 5,000 30
(INR bn)
which saw a slowdown, with a 9% CAGR on the back of 4,000 25
2,389
2,455
3,449
economic- and pandemic-led challenges. After a hiatus of 20
3,708
(%)
3,000
three-year period of less than 10% annual growth, POWF 15
2,000
1,302
1,605
1,890
2,175
3,731
10
recorded the highest 13% YoY growth with total AUM at
2,793
3,147
4,225
5,320
4,731
996
1,000 5
INR 4,225bn, primarily led by increased lending to 0 0
DISCOM and renewables, led by GOI schemes and the
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY23
FY25E
FY24E
onset of new growth opportunities.
AUM YoY growth (RHS)
Loan book to grow 1.5x over FY23-26E
We expect POWF’s loan book to grow ~1.5x over FY23-
26E to ~INR 6,000bn. While this growth is aspirational, we Leverage POWF+REC combine portfolio
believe expanding power sector financing value chain The business portfolio of POWF+REC combine should
beyond traditional portfolios of central power utilities, offer a competitive edge in infra financing at a time when
state power utilities and private power sector utilities to liquidity tightness followed by lower prepayments would
renewables, green hydrogen, infrastructure, eMobility restrict bank power credit expansion. Moreover, banks will
and nuclear will bolster growth prospects. have to adhere to prudential norms as set out by the
While traditional portfolios (namely generation loan Ministry of Power. Whereas, POWF and REC, with better
expansion and distribution) led by the RDSS will be understanding of the sector, can offer longer tenure loans
aligned to GOI’s initiatives, focus on renewables lending and the amounts required can be taken from PSUs
opportunities in line with India’s energy transition goals positioning these specialized power financiers at an
would boost POWF’s unconventional generation advantageous position.
portfolio growth.
We expect a 12% AUM CAGR over FY23-25E and the
likelihood of POWF’s assets almost doubling over the next
three years.

POWF+REC: formidable power Higher generation loans drive REC loans

financing play Given higher focus and expertise on the generation
portfolio, REC has recorded healthy growth traction of
Leveraging Maharatna and IFC status 17% CAGR over FY11-18 and a 13% CAGR over FY18-22
REC (formerly Rural Electrification Corporation) was and closed FY23 on a stronger note of 13.5% YoY
incorporated in 1969. It is a premier public sector growth. As on FY23-end, REC’s loan book stood at INR
enterprise in India that specializes in financing and 4,220bn, primarily tilting toward generation (45%).
promoting infrastructure projects in the power sector. Its POWF+REC: impregnable power financing franchise
focus on rural and semi-urban areas helps improve
Compared to pre-REC POWF, the combined PFC+REC
electricity access and promoting economic development
portfolio reflects a higher share of generation (49.4%),
in these regions. The company provides financial
distribution (37.4%), transmission (9.3%) and others
assistance and technical support for power-related
(3.9%) as on FY23.
projects, including generation, transmission, distribution,
and renewable energy initiatives. Around 90% of REC’s portfolio is targeted at the public
sector and POWF holds ~83% of the book linked to the
Besides being one of the leading infrastructure finance
public sector as on FY23. Thus, both companies witness
companies, REC also enjoys the Navratna and the
Maharatna status (refer to Annexure 2 for more details), higher stability in business and cashflow.
which accord that the Board of a ‘Maharatna’ CPSE can REC+PFC: strong renewable financier
make equity investments to undertake financial JV & Renewable energy the next big thing: REC is well
wholly owned subsidiaries and undertake M&A in India positioned to capitalize on the growing emphasis on
and abroad, subject to a ceiling of 15% of net worth of renewable energy (RE) sources by financing and
the concerned CPSE limited to INR 50bn in one project. supporting the development of solar & wind power
With this, it also can enter into a technological JV or other projects. This strategic move aligns with the GOI’s clean
strategic alliances. energy goals and offers huge opportunity for business
Both POWF and REC also hold an infrastructure finance expansion. In FY23, REC saw an increase in the share of
company (IFC) status which enables them to undertake renewable energy projects within its portfolio, which
additional lending exposure of up to 5% of owned funds currently stands at 7% vs 5% in FY22.
in case of a single borrower as well as up to 10% of
Like REC, POWF also has increased its focus on
owned funds in case of a single group of borrowers. Total
renewable energy projects. In FY23, the share of
permissible exposure would be 40% of owned funds in
renewable projects as a part of POWF's total loan book
case of a single group of borrowers. In addition, they
reached 11.4%. Moreover, REC has observed a sizeable
become eligible to issue infrastructure bonds and raise
funds of up to USD 500mn through external commercial rise in its financing of RE projects within the power
borrowings (ECB) in a year. generation sector. In FY23, loans to RE projects
accounted for 15% of total loans involved in power
Historically, REC loan mix saw a decline in transmission
generation (conventional as well as non-conventional),
loans with a mix as on FY23: generation (45%),
marking a notable increase from 7% in FY22. For POWF,
distribution (37%), transmission (11%), short term loans
the share of loans to RE projects in the power generation
[STL] (6%), and infrastructure finance (1%). REC has
sector was 21% in FY23 vs 17% in FY22.
started increasing the share of STL in its mix.
Gradual buildup of infrastructure finance book: The
POWF’s focus has been increasing share of distribution
loans, as the mix for FY23 is generation at 54%, GOI’s focus on infrastructure development creates
distribution at 38%, transmission at 7% and others at 1%. opportunities for REC to finance power infrastructure
projects, including transmission and distribution (T&D)
GOI aids in DISCOM reversal, GENCO timely payment
networks, as well as rural electrification initiatives. With
Alongside POWF, REC also acts as a nodal agency for
recent regulations allowing power financing companies
GOI’s generation projects schemes, such as 1) Pradhan
to finance infrastructure projects (up to one-third of total
Mantri Sahaj Bijli Har Ghar Yojana (SAUBHAGAYA), 2)
sanctions), POWF and REC have started to explore
Deen Dayal Upadhaya Gram Jyoti Yojana (DDUGJY), and
3) The National Electricity Fund (NEF). Along similar lines, projects under infrastructure, such as the Mumbai Metro.
both companies are reforming DISCOM operationally The combined business portfolio of POWF + REC should
through schemes, such as Revamped Distribution Sector have a competitive edge in the infra financing market at
Scheme (RDSS) and Ujwal DISCOM Assurance Yojana a time when liquidity tightness would restrict bank credit
(UDAY), which seek to financially turnaround power expansion.
DISCOM in the country.

Repricing to bolster margin PFC posted a GNPA of 3.91% in FY23, down from its peak
of 12.5% in FY17. With support from the GOI and schemes
Higher corporate loans in borrowing mix for REC launched to clear dues of GENCO and DISCOM,
As on March 2023, REC’s borrowing sees a healthy share companies are poised to see an improved asset quality.
of corporate bonds are at 42%, diversified adequately Accelerated resolution can lead to higher growth
with foreign currency bonds at 21%, loans from banks &
As on March 2023, REC has 19 stressed projects worth INR
financial institutions (FI) at 20%, capital gain bonds at
148.9bn, of which 12 are worth INR 116.3bn are being
10%, tax-free bonds at 3% and FCNR-B loans at 4%. Total
resolved under NCLT, and the rest worth INR 326.6bn
borrowings was at INR 3,746bn in FY23, up 6% YoY.
outside NCLT. The provision cover for projects under NCLT
Higher share of domestic bonds in POWF borrowing is 77%, and outside NCLT is 47%
As on March 2023, POWF’s borrowing share stands at On similar lines, POWF has witnessed 22 stressed projects
57% for domestic Bonds, Rupee term loan (RTL) from amounting to INR 165bn, of which 13 worth INR 139bn
banks at 19%, foreign currency borrowings at 18%, are being resolved under NCLT and the rest worth INR
subordinated bonds at 3%, 54EC bonds at 2% and other 26bn outside NCLT. The provisioning of projects under
STL at 1%. Thus, the company sees sustained borrowings NCLT is 77% vs 51% outside NCLT.
from domestic sources and diversifies mix by adding low-
These asset quality profiles of key power financing firms
cost 54EC and green bonds. Total borrowings stood at
reinforce their improving credit quality. We expect write-
INR 3,626bn in FY23, up 13% YoY.
backs on provisions in the upcoming periods for both
Cost of funds likely to stabilize companies, given the rapid pace of asset resolution, which
Since Q3FY20, REC has seen a stable cost of funds of 7% in turn, should translate into high double-digit earnings
as it enjoys a high credit rating of AAA, aided by a well- CAGR for both firms.
diversified borrowing mix. During the same period,
POWF sees an average COF of 7.4%. In a rising interest
Merger on the backburner
rate environment, REC and POWF have been able to While the merger of POWF and REC is on the backburner
negotiate better rates to lower COF and likely to stabilize. as per industry voices and interactions with experts, the
Robust yield to drive margin business prospects of the combined entity and for POWF
continue to stand stronger, underpinned by:
POWF has been successful in generating an average
yield of 11% over FY11-23. At the same time, REC PFC already hold sizeable 52.6% stake in REC
generated a yield of 10.9% for FY11-22. Thus, both In 2019, PFC acquired a 52.63% stake in REC (1,039.4mn
companies have generated a similar yield in the past and equity shares for INR 145bn; since then, it has become the
are expected to sustain. For FY23, yield for POWF and holding company and a promoter of REC, paving the way
REC was 10.04% and 9.73%, respectively. for synergy across group entities. The combined group’s
Steady margin expected entities would help the power sector reap benefits from a
REC sustained NIM at sub-5% on average over FY11-22. decentralized outreach of REC and professional project
As one of the Top 2 power financiers in the country, the finance expertise of POWF. The move stands to benefit
company enjoys the comfort of retaining stable margin. from the rural electrification goal and infrastructure
Recently, due to the increasing rate environment, REC lending of REC and POWF’s expertise in funding power
margin remains under pressure with FY23 reporting a projects, leading to timely and effective resolution of
NIM of 3.4%. However, it is expected to expand margin. stressed assets.
Consequently, POWF posted a NIM of 3.36% in FY23.
With borrowings being repriced, there is pressure on Further, since POWF acquired REC, the holding of REC in
NIM and spread for both companies; however, both Energy Efficiency Services (EESL) i.e., 21.7% which when
firms are expected to sustain margin. combined with POWF's share in EESL of 36.36% amounts
to 58.06%. Accordingly, PFC has become the holding
Improving asset quality company of EESL, and EESL has become a subsidiary of
Favorable private-public loan exposure POWF. On a consolidated basis, POWF’s loan book and
With 90% of REC’s portfolio and POWF’s 83% linked to profit almost has doubled. This provides POWF with a
the public sector, they are witnessing a higher stability in higher strategic importance in financing power sector
operations and cashflow. That said, higher exposure to projects and in the financial space. As on date of merger,
the government sector leads to delays in receiving the deal has made POWF the second-largest,
cashflow and which can be offset by higher profit government-owned financial firm and the third-highest,
realization from the private portfolio. profit-making financial company in India.
Improving asset quality
REC is seeing a gradual improvement in asset quality
since its GNPA peak in FY19 at 7.24%, dropping to the
lows of 3.42% in FY23.
Adequate room for fund augmentation

Currently, each entity can individually borrow up to 20%
from a single bank, resulting in a combined borrowing
capacity of 40% between POWF and REC. However, if
merger were to occur, the borrowing capacity of the
merged entity would be restricted to 25% from a single
bank. Consequently, the lending potential of the merged
entity would also be hit.
Exhibit 27: REC strong performance over quarters
(INR mn) Q1FY21 Q2FY21 Q3FY21 Q4FY21 Q1FY22 Q2FY22 Q3FY22 Q4FY22 Q1FY23 Q2FY23 Q3FY23 Q4FY23
Interest Income 81,033 88,378 88,962 88,465 94,372 97,240 97,100 93,153 93,738 96,883 97,796 99,946
growth (%) QoQ 4.5 9.1 0.7 (0.6) 6.7 3.0 (0.1) (4.1) 0.6 3.4 0.9 2.2
Interest Expenses 51,930 54,120 54,460 54,381 55,886 55,626 55,487 53,531 53,767 57,287 61,350 64,973
growth (%) QoQ 5.1 4.2 0.6 (0.1) 2.8 (0.5) (0.2) (3.5) 0.4 6.5 7.1 5.9
Net Interest Income 29,103 34,259 34,502 34,083 38,487 41,615 41,612 39,622 39,971 39,596 36,447 34,972
growth (%) QoQ 3.4 17.7 0.7 (1.2) 12.9 8.1 (0.0) (4.8) 0.9 (0.9) (8.0) (4.0)
Other Income 3,189 (464) 1,508 3,034 1,549 3,548 3,290 2,863 947 2,603 (679) 1,294
growth (%) QoQ 129.3 (114.5) (425.2) 101.2 (48.9) 129.1 (7.3) (13.0) (66.9) 174.7 (126.1) (290.6)
Total Income 32,291 33,795 36,011 37,117 40,036 45,163 44,902 42,485 40,918 42,199 35,768 36,266
growth (%) QoQ 9.4 4.7 6.6 3.1 7.9 12.8 (0.6) (5.4) (3.7) 3.1 (15.2) 1.4
Total Operating Expenses 5,534 (1,872) 610 3,183 4,641 157 2,195 6,610 6,478 5,670 3,116 1,351
growth (%) QoQ (67.8) (133.8) (132.6) 421.4 45.8 (96.6) 1,294.5 201.2 (2.0) (12.5) (45.0) (56.7)
Operating Profit (PPOP) 26,757 35,667 35,400 33,934 35,395 45,005 42,707 35,875 34,441 36,529 32,651 34,916
growth (%) QoQ 116.4 33.3 (0.7) (4.1) 4.3 27.2 (5.1) (16.0) (4.0) 6.1 (10.6) 6.9
Provisions & Write-Offs 1,986 7,934 7,300 6,976 7,814 11,185 8,190 7,543 5,045 2,239 (2,938) (3,197)
growth (%) QoQ (63.1) 299.5 (8.0) (4.4) 12.0 43.1 (26.8) (7.9) (33.1) (55.6) (231.2) 8.8
PBT 24,771 27,733 28,101 26,958 27,581 33,820 34,517 28,331 29,396 34,290 35,590 38,112
growth (%) QoQ 254.8 12.0 1.3 (4.1) 2.3 22.6 2.1 (17.9) 3.8 16.7 3.8 7.1
Tax 6,380 5,831 5,471 6,261 5,115 6,432 6,791 5,452 4,923 7,007 6,809 8,103
growth (%) QoQ 143.0 (8.6) (6.2) 14.4 (18.3) 25.8 5.6 (19.7) (9.7) 42.3 (2.8) 19.0
Reported Profit 18,390 21,902 22,629 20,696 22,466 27,388 27,727 22,879 24,473 27,284 28,781 30,009
growth (%) QoQ 322.1 19.1 3.3 (8.5) 8.6 21.9 1.2 (17.5) 7.0 11.5 5.5 4.3
Balance sheet
Disbursement 1,52,710 2,87,360 1,86,980 3,01,920 1,50,950 2,17,300 1,18,390 1,54,860 1,24,420 1,78,270 2,96,380 3,69,390
growth (%) QoQ (31.2) 88.2 (34.9) 61.5 (50.0) 44.0 (45.5) 30.8 (19.7) 43.3 66.3 24.6
Loans 33,07,880 34,89,510 35,70,670 37,74,180 37,93,900 38,72,770 38,87,600 38,53,710 38,78,880 39,44,340 41,11,480 43,50,120
growth (%) QoQ 2.6 5.5 2.3 5.7 0.5 2.1 0.4 (0.9) 0.7 1.7 4.2 5.8
Key Ratio
Gross NPA 2,02,110 1,82,200 1,82,210 1,82,570 1,82,110 1,82,120 1,97,150 1,71,600 1,71,250 3,04,770 1,49,230 1,48,920
growth (%) QoQ (4.9) (9.9) 0.0 0.2 (0.3) 0.0 8.3 (13.0) (0.2) 78.0 (51.0) (0.2)
Gross NPA (%) 6.11 5.22 5 4.84 4.80 4.70 5.07 4.45 4.41 4.03 3.63 3.42
growth QoQ (bp) -48 -89 -12 -26 -4 -10 37 -62 -4 -38 -40 -21
Net NPA (%) 2.88 2.04 2 1.71 1.61 1.52 1.74 1.45 1.41 1.24 1.12 1.01
growth QoQ (bp) -44 -84 -9 -24 -10 -9 22 -29 -4 -17 -12 -11
ROE (%) 20.30 22.57 22 19.44 20.17 23.44 22.63 18.08 18.90 20.58 21.26 21.34
growth QoQ (bp) 1,556 227 -49 -264 73 327 -81 -455 82 168 68 8
NIM - calc (%) 3.68 4.19 4 3.87 4.10 4.41 4.41 4.09 4.09 3.73 3.55 3.29
growth QoQ (bp) -8 51 -13 -19 23 31 0 -32 0 -36 -18 -26

Exhibit 28: DuPont analysis – REC

ROA as % of avg AUM FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23
Interest Income 11.6 12.4 12.9 13.5 13.4 14.6 13.2 10.6 10.1 10.2 10.4 10.6 9.9
Interest Expense 6.8 7.6 7.7 7.9 7.9 8.8 7.8 6.3 6.3 6.5 6.3 6.0 6.0
Net Interest income 4.8 4.7 5.2 5.5 5.6 5.8 5.4 4.3 3.9 3.7 4.1 4.6 4.0
Other Income 0.3 0.1 0.1 0.1 0.1 0.1 0.4 0.0 0.0 0.0 0.0 0.0 0.0
Total Income 5.1 4.9 5.3 5.6 5.7 5.8 5.9 4.3 3.9 3.7 4.1 4.7 4.0
Opex 0.2 0.3 0.2 0.2 0.2 0.2 0.2 0.4 0.5 1.0 0.2 0.3 0.4
Staff 0.2 0.2 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.0 0.0 0.1
Other Opex 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.4 0.5 1.0 0.2 0.3 0.4
Pre-Provisioning Profit 4.9 4.6 5.1 5.4 5.5 5.6 5.7 3.9 3.3 2.7 3.9 4.3 3.5
Provisions 0.0 0.1 0.1 0.2 0.5 0.7 0.6 1.1 0.1 0.3 0.7 0.9 0.0
PBT 4.9 4.5 4.9 5.2 4.9 5.0 5.0 2.8 3.2 2.4 3.2 3.4 3.5
Tax 1.3 1.2 1.3 1.5 1.4 1.5 1.5 0.7 0.9 0.7 0.7 0.6 0.7
PAT (ROA) 3.6 3.4 3.6 3.7 3.5 3.5 3.5 2.1 2.3 1.7 2.5 2.7 2.8
RoE 21.5 20.6 23.8 24.6 23.1 21.0 21.1 14.1 17.3 14.1 21.3 21.3 20.6
Exhibit 29: REC's robust business metrics indicate strong fundamentals

(INR mn) FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23
AUM 744,067 929,581 1,164,905 1,362,806 1,653,140 1,585,894 1,939,345 2,288,783 2,704,509 3,120,835 3,652,615 3,719,305 4,220,839
YoY growth (%) 10.3 24.9 25.3 17.0 21.3 (4.1) 22.3 18.0 18.2 15.4 17.0 1.8 13.5
Disbursements 285,171 305,933 401,831 355,460 428,180 460,260 697,310 617,110 721,650 756,670 928,970 641,500 968,460
YoY growth (%) 5.1 7.3 31.3 (11.5) 20.5 7.5 51.5 (11.5) 16.9 4.9 22.8 (30.9) 51.0
NII 34,059 39,588 54,536 69,795 83,849 93,552 95,757 91,175 96,682 107,682 138,988 170,796 157,449
YoY growth (%) 28.1 16.2 37.8 28.0 20.1 11.6 2.4 (4.8) 6.0 11.4 29.1 22.9 (7.8)
OPEX 1,645 2,326 2,203 2,396 3,134 3,381 3,517 9,490 13,588 29,592 7,456 12,793 17,470
YoY growth (%) (1.6) 41.4 (5.3) 8.8 30.8 7.9 4.0 169.8 43.2 117.8 (74.8) 71.6 36.6
Provisions 2 523 1,307 3,120 8,030 10,899 11,095 22,971 2,403 8,896 24,196 34,733 1,422
YoY growth (%) 23,659.1 150.0 138.8 157.3 35.7 1.8 107.0 (89.5) 270.1 172.0 43.5 (95.9)
PAT 25,699 28,170 38,176 46,837 52,599 56,277 62,458 44,199 57,637 48,862 83,618 100,459 111,670
YoY growth (%) 10.4 9.6 35.5 22.7 12.3 7.0 11.0 (29.2) 30.4 (15.2) 71.1 20.1 11.2
Net worth 128,274 145,630 174,544 206,695 248,570 286,178 305,518 323,032 343,029 350,766 434,264 509,856 576,797
YoY growth (%) 15.8 13.5 19.9 18.4 20.3 15.1 6.8 5.7 6.2 2.3 23.8 17.4 13.1
EPS (INR) 26.0 28.5 38.7 47.4 53.3 57.0 31.6 22.4 29.2 24.7 42.3 50.9 42.4
YoY growth (%) 10.4 9.6 35.5 22.7 12.3 7.0 (44.5) (29.2) 30.4 (15.2) 71.1 20.1 (16.6)
BVPS (INR) 129.9 147.5 176.8 209.3 251.7 289.8 154.7 163.6 173.7 177.6 219.9 258.2 219.0
YoY growth (%) 15.8 13.5 19.9 18.4 20.3 15.1 (46.6) 5.7 6.2 2.3 23.8 17.4 (15.2)

Rerating drivers
❑ Asset quality improvement of 3.5% in FY24E, stabilize at 4.0% from FY25E
❑ Likely resolution of chunky NPAs worth ~INR 86.8bn, INR 26bn outside NCLT & slight delinquency
❑ Minor delinquency in new portfolios, given limited disbursements to date
Asset quality resolution key for rerating Exhibit 31: A decline of 860bp in GNPA over FY17-23
With an asset base of over INR 4,000bn as on FY23, asset 14 GNPA
quality assessment is a key deciding factor for earnings 12 12.5 9.6 9.4
performance. Historically, POWF has demonstrated 10
(%)
8.1
healthy asset quality with GNPA of 1.2% on average over 8
5.7 5.6
FY11-16. However, during FY17-20, it touched the double 6 3.9
digits at an average of ~10%, primarily on account of 4
1.0 0.7 0.6 1.2 3.1
three factors: 2 0.2
▪ Technical glitches led by transition of NPA 0
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY23
recognition norms to regulatory prudential norms,
implying a shift from earlier norms of linkage of
overdue assets to payment defaults to NPA
recognition being linked to achievement of NPA decline likely to sustain
commissioning date of project within three years of We believe it is the start of a strong and sustainable low
being operational. NPA trends for POWF as asset quality is coming out of
▪ Increased focus on private sector assets (17% of assets woods, predominantly led by three aspects:
in FY17 vs 7% in FY11) over GOI-backed public assets (1) Private sector assets backed by strong balance sheets
▪ Deteriorating macros, namely widening States’ fiscal (2) Improving SEB health where incremental
deficit, followed by inching up of SEB losses disbursements have been higher
Exhibit 30: Stage-wise NPA trend (3) GOI schemes support asset quality improvement
(%) FY20 FY21 FY22
(4) Accelerating bad assets resolution
Standard assets 96.7 97.6 97.3
Total standard assets
- Stage 1 85.9 84.5 89.9 grow to 97.3% in Private sector exposure concerns over done
FY22 to INR 3.5tn
- Stage 2 9.9 13.1 7.3 from 96.7% in FY20 Over the years, elevated NPA challenges have emerged
to INR 3.2tn from private sector exposure that has risen from 7% in
- Stage 3 0.9 0.0 0.0
Sub-standard assets 0.3 0.1 0.3 FY11 to 17% in FY23. Said that, on the positive side, private
Sub-standard assets
sustained at 0.3% in sector lending comes with enhanced bargaining power
- Stage 1 0.2 0.1 0.1
FY22 to INR 12.5bn (on pricing and resolutions) and that the private sector
- Stage 2 0.0 0.0 0.0 vs FY20 to INR
11.6bn
assets have a strong backing of big corporates with
- Stage 3 0.1 0.0 0.2
healthy balance sheets. Moreover, higher public sector
Doubtful assets 3.0 2.3 2.4 concentration comes with its own benefits. POWF’s loans
Decline in doubtful
- Stage 1 0.1 0.2 0.8 assets to 2.4% in to state sector stand well diversified as these are extended
FY22 to INR 85.4bn
- Stage 2 0.0 0.0 0.0 from 3.0% in FY20 to to multiple entities under the control of various State
- Stage 3 2.9 2.1 1.6
INR 101bn Governments and Central Government. These loans have
relatively a low credit risk mainly due to low default / loss
history in public sector and availability of government
Sharp fall in GNPA over FY20-23 guarantee in certain loans and presence of Government
POWF witnessed improving trends on standard assets interest in these projects also lowers the risk of non-
with focus on bad assets resolution and rapidly increasing recoverability of dues.
post pandemic and enhanced provisioning measures. As
Exhibit 32: Risk free government sector maintains
a result, the company saw a sharp fall in GNPA over FY20-
high portfolio share
23 with FY23 reporting the lowest GNPA at 3.9% with a
Sector wise loan mix (%) FY17 FY18 FY19 FY20 FY21 FY22 FY23
healthy PCR of 72.7%, demonstrating the beginning of
sustained positive trends in asset quality. Private Sector 17.1 18.2 17.0 16.6 16.0 15.8 17.2
Government Sector 82.9 81.8 83.0 83.4 84.0 84.2 82.8

Improving SEBs’ health

We present a detailed case study encompassing SEB
challenges, changes in modus operandi and improving
scenario reflecting in better POWF portfolio.
What led to the losses
Exhibit 34: Reduced GAP between ACS and ARR to
Tariff rates are an important source of revenue for INR 0.15/kWh
power companies. Increased tariff rates raise the ACS - ARR Gap
burden of increased electricity prices for end-customers. 6.5 6.14 6.19 6.29
However, it serves to be the key factor for sustaining 6.00 0.15
6.0
(INR/kWH)
power utilities as they facilitate covering operational 5.50 0.50 0.70 6.14
5.31 5.38 0.65
expenses, maintenance cost, infrastructure investment 5.5
0.28 5.64
and repayment of dues. Earlier, tariff rates were 0.37 5.49
5.0 0.48 5.35
inadequate for power companies to cover charges and 5.22
5.01
additional returns. 4.5 4.83
At the same time, tariff subsidies are the financial 4.0

FY16 FY17 FY18 FY19 FY20 FY21 FY22
support provided by the GOI to reduce the cost burden
on end-customers. Due to lower subsidies to customers, Gap ACS ARR
affordability and accessibility of power for customers Source: Company, Elara Securities Research
was low; hence, it proved to be a dampener on revenue
for SEB and an encumbrance on India’s full
States recently raise tariffs to offset losses
electrification goal.
The short-term tariffs have increased significantly,
SEB also faced higher aggregate technical and reaching INR 5.9/unit in FY23, primarily due to robust
commercial (AT&C) and T&D losses of 26% and 24%, demand growth, limitations in domestic coal supply,
respectively, in FY11. Higher cost led to further and elevated open market coal prices. However, it is
expansion of losses for SEB. The Aggregate Cost of likely these tariffs will reduce in FY24 on the back of
Supply (ACS) and Average Realisable Revenue (ARR) improved coal supply and a moderation in demand
gap was at INR 0.48/kWh in FY11 with ACS at INR growth. Nevertheless, it is expected tariffs will remain
5.31/kWh and ARR of INR 4.83/kWh. Aggregate losses higher, ~INR 4.5/unit vs the long-term average of INR
for SEB were as high as INR 726bn in FY12, post which 3.0-3.5/unit.
they have been on a declining trend, bottoming in FY18
at INR 280bn. For FY22, losses stood at INR 310bn Recently, the Bihar Electricity Regulatory Commission
(BERC) announced a 24% tariff hike in the state.
Exhibit 33: Reducing SEB losses owing to MOP Similarly, Uttar Pradesh and Madhya Pradesh also have
initiatives requested similar tariff hikes. In line with these
Commercial Losses for SEBs developments, state owned Maharashtra State
726
Electricity Distribution (MSEDCL) has sought a tariff hike

708
680
800
of 14% for FY24 and 11% for FY25 to remain at par with
(INR bn)
546
503
496
increased cost of power, due to high coal prices and

479
475
600
other factors making power purchase more expensive.
339
310
302
280
400
At the same time, tariff subsidies received by several
200 States have been increasing recently; hence, it will nullify
the impact of the tariff rate hike on customers, thereby
0 bolstering profitability of power companies. Rajasthan
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
saw the highest increase in tariff subsidies received,

growing by 73% from INR 74bn in FY20 to INR 128bn in
FY21.
With expected reducing losses, company funds can

effectively be used to repay outstanding dues toward
SEBs and power financing companies, such as POWF
and REC.

Exhibit 35: Increased tariffs to INR 5.9/unit from sub-INR 4.0/unit in January 2022
7,000 12
6,000 10
5,000
8
(mn units)
(INR/unit)
4,000
6
3,000
4
2,000
1,000 2
0 0
Jun-22
Apr-22
Apr-23
May-22
Aug-22
Sep-22
Dec-22
Feb-23
Jan-22
Oct-22
Feb-22
Jul-22
Nov-22
Jan-23
Mar-22
Mar-23
DAM Volume (LHS) RTM Volume (LHS) DAM Price (RHS) RTM Price (RHS)
Lower AT&C and T&D losses aids in fall in aggregate

Exhibit 36: Sanctions and disbursements under the
Higher aggregate losses also were due to higher AT&C LPS scheme
losses, led by operational inefficiency. However, AT&C
140 124
losses for power utilities are showing a sustained
120
downward trend since FY11. AT&C losses have decreased
from 26.4% in FY11 to ~17.0% currently, indicating 100
(INR bn)
78
improving operational efficiency, led by GOI schemes, 80 66
such as the RDSS which is primarily focused on reducing 60
AT&C losses for DISCOM on a pan-India level targeting a 40 24
minimum reduction of 12-15%) and the implementation 20 13 11
of IT and technical interventions under the R-APDRP and
0
the RDSS schemes, which, in turn, is aiding in improving Q2FY23 Q3FY23 Q4FY23
billing and collection efficiency. Disbursement Sanctioned
With the help of support of these GOI schemes and Source: Company, Elara Securities Estimate
technical assistance provided to companies, SEB are able
to see reduced losses and improved efficiency in
performance.
Exhibit 37: Depleting SEB losses, bettering macros reflecting in strengthening asset quality of POWF
(INR bn) FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22
State Fiscal Deficit 1,615 1,684 1,955 2,479 3,272 4,207 5,343 4,105 4,628 5,247 8,046 8,286
After tax Losses for Distribution Utilities 496 726 708 680 546 475 339 280 479 302 503 310
Avg Revenue ex. Grant under UDAY -

3.03 3.30 4.19 4.41 4.62 4.77 5.01 4.99 5.53 5.85 5.62 6.16
on subsidy received basis (INR/kWh)*
AT&C Losses (%) 26.04 26.63 25.48 22.62 25.72 23.98 23.56 22.31 21.64 20.73 22.32 16.42
PFC - GNPA (%) 0.23 1.04 0.71 0.65 1.16 3.15 12.50 9.56 9.39 8.08 5.70 5.61
Note: *without considering subsidy booked from FY08-12; Source: Company, Elara Securities Research

During FY17-22, several asset quality challenges emerged, agency, POWF has helped improved operations,
which were critical for POWF. profitability, and sustainability of DISCOM, thereby
generating required cashflow for loans disbursed
India saw a notable widening of state fiscal deficit during
FY17-23 with it spiking from INR 534bn in FY17 to INR ▪ Pilot Scheme I & II: The pilot schemes launched over
805bn in FY23 (budgeted at INR 883bn over FY22-23). FY19-20 incentivized GENCO to improve technical
This period also coincided with swelling losses of SEB, infrastructure through adoption of new technology,
which heightened from INR 339bn in FY17 to INR 503bn reduce cost of generating electricity and improve
in FY21. This can be attributed to elevated AT&C losses, reliability & efficiency of power generating plants,
steered by operating inefficiency due to key factors, such which, in turn, aiding GENCO on timely repayments.
as nil tariff hikes, and inflated power purchase interest rate This should result in minimizing bad assets for POWF
cost. The NPA challenges were prominent as they were
▪ LPS: The late payment surcharge was implemented in
during FY17-23, which also witnessed a higher exposure
FY22, aided in providing a mechanism of providing
of POWF to SEB with expansion in the distribution loans
financial assistance for settlement of outstanding
portfolio. It rose from 3% of overall share in FY17 to 37%
dues of DISCOM to GENCO or TRANSCO. Under the
as on FY23. Consequently, the period over FY17-21 was
LPS settlement mechanism, payments toward
crucial with average NPA standing at ~10%.
outstanding principal dues are in the nature of
That said, AT&C losses for power utilities exhibit a interest-free EMI and penalty charges for non-
sustained downtrend since FY11. AT&C losses have payments as per predetermined payment schedules,
decreased from 26.4% in FY11 to ~17% currently (Source: encouraging timely DISCOM payments. LPS schemes
UDAY portal), indicating improving operational efficiency, have already yielded promising results. More than
led by GOI schemes, such as the RDSS (primarily focused 40% DISCOM dues to GENCO have come off in less
on reducing AT&C losses for DISCOM on a pan-India level, than a year of LPS introduction
targeting a minimum reduction of 12-15% in AT&C losses)
and implementation of IT & technical interventions under Accelerating bad asset resolution
the R-APDRP and the RDSS schemes, which, in turn, aids POWF has come a long way in terms of resolution of
in improving billing and collection efficiency. critical assets. The pace of resolutions has picked up,
especially after the pandemic. The company observed
GOI schemes focus on reducing financier stress resolution of three meaningful stressed assets, amounting
to INR 44bn (namely Southeast UP Power Transmission,
With increasing GOI support to resolve bad assets in the
Jhabua Power, Bharat Energy Utkal) over the past year. In
power sector space, asset resolution momentum has
FY23, POWF actively engaged in the resolution of 22
picked up pace for POWF, aiding in improving asset
projects, with 13 amounting to INR 139bn undergoing
quality. There are key GOI schemes which played an
NCLT resolution and nine worth INR 25.9bn being
instrumental role in enhancing asset quality positioning:
resolved outside the NCLT framework. As on Q3FY23, out
▪ UDAY: The Ujwal DISCOM Assurance Yojana (UDAY) of 22 projects, two projects Dans Energy worth INR 4.1bn
Scheme has played a pivotal role in improving and Lanco Amarkantak Power worth INR 23.8bn, have
financial health of state-owned power distribution reached an advanced stage of resolution.
companies (DISCOM), reducing DISCOM debt burden
The company’s increased emphasis on asset resolution
& interest cost, and lowering AT&C losses of DISCOM.
and improved appraisal practices have resulted in a
In this scheme, State governments are entitled to take
healthier loan book, evidenced by the reduction in NPA.
over some portion of DISCOM debt in a graded
Its proactive provisioning approach and advanced stage
manner (namely, 0% of loss of FY15-16, 5%: FY17,
of resolution for significant projects further strengthened
10%: FY18, 25%: FY19 & 50%: FY20) and the rest to
its position. Increased efforts toward asset resolution have
be resolved through DISCOM bonds (tenure: 10-15
helped the company reduce its overall NPA, thereby
years, moratorium: five years, as on date: bonds
building a healthier book.
issued: INR 2,321bn, bonds to be issued: INR 2,691bn)
backed by State Government guarantees, thereby POWF has effectively resolved its stressed assets and
enabling reduction in bad assets for POWF improved its overall loan portfolio, owing to its robust loan
appraisal and collection system. In FY21, the company
▪ IPDS and RDSS: The IPDS and RDSS (IPDS & R-APDRP
achieved a significant asset resolution of INR 68.4bn,
have been subsumed in RDSS) schemes have helped
primarily driven by the resolution of two phases of RKM
DISCOM to improve operating efficiency and reduce
Powergen amounting to INR 11.3bn and INR 39.8bn,
AT&C losses, thereby generating higher surplus
respectively, aggregating to INR 51.1bn. In FY23, POWF
cashflow to pay off outstanding dues. Being a nodal
resolved three projects worth INR 44bn vs five projects

resolved in FY22 worth INR 30bn. Resolved projects were Healthy resolution in FY21 contributed to a decline in
Southeast UP Power Transmission worth INR 22.6bn, GNPA from 8.08% in FY20 to 5.70% in FY21. The
Jhabua Power worth INR 7.6bn and Ind- Bharat Energy company continues this positive trend in asset
Utkal worth INR 13.7bn. resolution during FY22-23, resulting in a further
decline in GNPA. By FY23, GNPA had dropped to
3.91%, highlighting the company's consistent efforts
in improving asset quality.
Exhibit 38: Quarterly asset resolution status
Under NCLT
Projects (no) 17 17 17 16 16 16 16 14 14 12 12 13
Total value 161,620 161,850 161,850 158,200 158,200 166,880 166,880 153,380 153,380 123,190 109,730 139,120
Outside NCLT
Projects (no) 10 8 7 9 10 9 11 9 9 10 10 9
Total value 103,730 103,420 51,610 53,300 53,340 43,750 58,170 55,780 43,950 55,910 55,910 25,900
Exhibit 39: Annually resolved projects
FY20 FY21 FY22 FY23
Loan assets: INR 3,449bn Loan assets: INR 3,708bn Loan assets: INR 3,731bn Loan assets: INR 4,225bn
Assets resolved: INR 28.7bn Assets resolved: INR 68.4bn Assets resolved: INR 30.1bn Assets resolved: INR 44bn
▪ RS India (INR 2.24bn) ▪ Jal Power (INR 3.86bn) ▪ Essar Power MP ▪ Southeast UP Power
(INR 15.7bn) Transmission
▪ GMT Chhattisgarh ▪ RKM Powergen
(INR 22.63bn)
(INR 9.28bn) (INR 51.05bn) ▪ RS India Wind Energy
(INR 2.24bn) ▪ Jhabua Power
▪ Rattan India Amravati ▪ Suzlon Energy
(INR 7.64bn)
(INR 17.2bn) (INR 9.15bn) ▪ GVK Ratle (INR 11.16bn)
▪ Ind-Bharat Energy Utkal
GNPA: 8.08% ▪ Essar Transmission ▪ Astonfiels Solar
(INR 13.68bn)
(INR 4.38bn) (INR 0.26bn)
▪ Krishna Godavari GNPA: 3.91%

GNPA: 5.70% (INR 0.76bn)
GNPA: 5.61%

As on Q4FY23, within NCLT, projects amounting to INR

165bn, comprises:
▪ KSK Mahanadi (ongoing consolidation of various SPV

under NCLT)
▪ Lanco Amarkantak (a letter of intent has been issued

to POWF projects and REC Consortium)
▪ Sinnar Thermal (NCLT proceedings have been stalled

but POWF is in discussions with Maharashtra GENCO
for project takeover)
▪ East Coast (under liquidation)
▪ Maheshwar Hydel project (Corporate Insolvency

Resolution Process [CIRP] process stalled)
Exhibit 40: Projects under NCLT

Ind-Barath Energy Utkal 0 13,680 0 0 0 0 0 0 13,680 13,680 13,680 0
Lanco Amarkantak Power 0 23,760 0 0 0 0 0 0 0 23,760 23,760 23,760
KSK Mahanadi 0 33,000 0 0 0 0 0 0 0 33,000 0 33,000
Shri Maheshwar Hydel Project 0 15,490 0 0 0 0 0 0 0 16,190 0 16,190
Sinnar Thermal Power* 0 0 0 0 0 0 0 0 0 0 0 30,010
South East UP Power Transmission 0 22,630 0 0 0 0 22,630 22,630 22,630 0 0 0
Jhabua Power 0 0 0 0 7,640 0 0 7,640 7,640 0 0 0
Essar Power Mahan loan 0 0 0 0 13,450 13,450 13,450 0 0 0 0 0
Krishna Godvari loan 0 0 0 0 0 766 0 0 0 0 0 0
Jal Power 0 0 0 3,860 0 0 0 0 0 0 0 0
India Power Corporation (Haldia)* 0 0 0 0 0 0 0 0 0 0 0 9,590
Konaseema Gas Power 0 0 0 0 0 0 0 0 0 0 0 0
KVK Nilanchal 0 0 0 0 0 0 0 0 0 0 0 0
East Coast Energy 0 0 0 0 0 0 0 0 0 0 0 11,250
In-Barath (Madras) 0 0 0 0 0 0 0 0 0 0 0 0
Note: *part of projects outside NCLT, however later moved to resolution under the NCLT; Source: Company, Elara Securities Research
As on Q4FY23, projects being resolved outside NCLT

amounting to INR 25.9bn comprise:
▪ TRN Energy (INR 11.4bn, 600MW commissioned,

outside NCLT)
▪ Shiga Energy (INR 5.2bn, 97MW commissioned,

outside NCLT)
▪ Dans Energy (INR 4.1bn, 97MW commissioned,

outside NCLT)
Exhibit 41: Projects outside NCLT

Dans Energy 0 0 0 0 0 0 0 0 0 0 4,130 4,130
Sinnar Thermal Power* 0 30,010 0 0 0 0 0 0 0 30,010 0 0
RKM Powergen 0 51,800 51,050 51,050 0 0 0 0 0 0 0 0
Suzlon Energy 9,150 0 0 9,150 0 0 0 0 0 0 0 0
Essar Transmission 4,380 0 0 4,380 0 0 0 0 0 0 0 0
India Power Corporation
0 9,590 0 0 0 0 0 0 0 0 0 0
(Haldia) *
Shiga Energy- Hydro 0 0 0 0 0 0 0 0 0 0 0 5,220
TRN Energy 0 0 0 0 0 0 0 0 0 0 0 11,390
Note: *part of projects outside NCLT, however later moved to resolution under NCLT; Source: Company, Elara Securities Research,

GNPA at 3.5% in FY24; stabilize at 4% The resolution pipeline stands robust, characterized by
Continued and proactive resolution efforts over the past ▪ Resolution of three NPA accounts worth ~INR 86bn
few years have led to a six-year low NPA at 3.9% in FY23 (KSK Mahanadi Power, Sinnar Thermal Power and
from elevated levels of 12.5% in FY17. Lanco Amarkantak)
As on FY23, POWF saw a 21% reduction in stressed assets ▪ INR 26bn being resolved outside the NCLT
to INR 165bn from INR 209bn in FY22. In FY23, Stage I & POWF's asset quality should continue to exhibit asset
II assets increased to 96.1% vs 94.4% in FY22. Stage III quality enhancement in tandem with improving health of
assets for FY23 were 3.9% vs 5.6% for FY22. In FY23, total discoms. Factoring in ~INR30bn asset resolutions over
provisioning for the Stage I & II assets increased to 25.4% FY24E led by accelerating pace of resolutions, we expect
vs 17.3% in FY22. Provisioning for Stage III assets for FY23 GNPA to decline 3.5% by FY24E-end. While there is
were 74.6% vs 82.7% for FY22. Overall, the ECL-EAD ratio significant scope to maintain NPA levels at 3.0-3.5%, we
has decreased to 3.8% in FY23 from 4.6% in FY22. still estimate GNPAs at 4% over FY25-26E as the company
diversifies into newer product portfolios. On the
The company has sustained a relatively low level of NPA
provisioning front, FY23 witnessed provision reversals
in the public sector over the years. Since FY18, it has seen
underpinned by successful resolution and upgradation of
nil NPA from the public sector. Notably, as on FY23, out of
Stage 3 assets and the company still maintaining high PCR
total assets, 83% of Stage 1+2 portfolio has concentration
at 73% (increased PCR from 69% in FY22 to 73% in FY23
from the government sector. on account of elevated provisions made for TRN energy
Moreover, POWF has demonstrated prudent provisioning asset). Going forward, we expect the credit charge to P&L
practices over the years, in our view, ensuring appropriate remaining benign especially for FY24 at INR 5.6bn (vs -
allocation of funds to offset potential loan losses. The INR30bn for FY23 vs INR 222bn for FY22) as we
company's provisioning figures & ratios, and trends incorporate largely standard asset provisioning and
highlight its commitment to sustain a healthy loan anticipated sizeable NPA decline with meaningful assets
portfolio. under final stages of resolution and maintain ~INR 100bn
credit charge to P&L over FY25-26E as benign asset quality
Notably, POWF has prudently made adequate provisions scenario is here to stay. PCR to be expectedly remain at 60-
for stressed assets, safeguarding against any potential 70% over FY24-FY25E.
adverse impact. The company sustains provisions of 77%
That said, 4% GNPA on a high loan base of INR4000-
on projects under NCLT and 51% resolved outside the
5000bn and lower incremental provisioning requirement
NCLT framework. In FY23, the provision coverage ratio
at least over next two years per se forms a strong catalyst
(PCR) stood at 73% vs 68.6% in FY22. for stock re-rating ahead, we reckon.
Notably, given the company’s conscious efforts to secure Exhibit 42: Improving asset quality on the back of
the safety of cashflow from assets, speedy resolution of adequate provisioning
stressed assets and upgradation of Stage 3 assets, FY23
14 80
witnessed provisioning reversals with nil incremental 70
12
requirement of credit cost and that the current provisions 60
10
(%)
levels are adequate. 56.6 50

8
(%)
40
6
4.0 30
4 20
2 1.7
10
0 0
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY23
FY24E
FY25E
GNPA NNPA PCR (RHS)

Additional boosters
❑ Asset repricing to support NIM stability at 3.7% by FY25E
❑ Credit cost sustaining at 12-18bp over FY23-25E
❑ ROE of ~17% and a ROA of 2.8% over FY23-25E
Asset repricing to drive stable NIM While liquidity conditions have eased off and interest rates
turning benign, the scenario is expected to be in favor of
Historically, POWF’s stability in the margin profile can be
POWF.
largely attributed to the nature of its assets and borrowing
profile. Yield: asset repricing to support NIM stability
The company’s strong positioning on the liability side of POWF has consistently sustained yield, reflecting its
balance sheet can be attributed to the following facts: expertise and strategic positioning within the power
sector. Historically, yield remains at an average of 11.5%
▪ Portfolio reset: Around 70% of the liability portfolio over FY11-18. With the falling interest rates, yield had
stands fixed; hence, the rates are locked in and only settled at 9.8% over FY19-23. The low interest rate
30% of the debt portfolio moves in tandem with the environment saw POWF’s yield declining by ~165-300bp,
market rates. Also, the entire liability portfolio takes as the company chose to pass rate benefits to the
almost 4.5 years to get repriced. Asset pricing reset borrowers. The residual impact of which spilled over in
takes place every 3-4 years FY23, which closed with a moderation in yield by 18bp
▪ Diversification into low-cost borrowings: While POWF YoY. With the rate cycle uptrend, the company saw asset
has less flexibility to maneuver yield, given the repricing in December 2022 and March 2023, the effects
company’s focus on a niche customer base largely of which will be reflected in improved yield in the
driven by GOI agenda, the liability management has forthcoming period.
stood fairly effective, led by diversification into Exhibit 44: Stable yield trend
cheaper funding sources (54EC & green bonds) and 12.2
12.2
12.0
11.9
hedged foreign currency borrowings 12.5

11.3
11.3
12.0
11.1
11.2
▪ Effective ALM management: The company has a
11.5
10.7
sound asset liability management, as it has been
10.5
10.4
11.0
sustaining a dulcet mix of short term (~27% on
10.1
(%)
10.0
10.5
9.9
average over FY11-22), medium term (~17% on

9.7
average over FY11-22) and higher long-term 10.0

advances (~56% on average during FY11-22). Thus, 9.5
gaining from short-term movements in the interest 9.0
FY15
FY11
FY12
FY13
FY14
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY23
FY24E
FY25E
rate environment as well as sustaining a high share of
long-term loans on the book catering to longer-term
power projects. Moreover, the timing of assets and Source: Company, Elara Securities Estimate
liabilities reset have been aligned, leaving no
mismatch supportive of margin stability.
Exhibit 43: Healthy ALM management for over 5-year

portfolio
70 30
Five-year ALM
60 25
50
(%)
20
40
(%)
15
30
10
20
10 5
0 0
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY11
Assets Liabilities Mismatch (RHS)

Exhibit 45: Yield stands healthy vs peers despite POWF being a wholesale-led franchise model
NBFC FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23
POWF 11.3 11.3 11.9 12.2 12.2 12.0 11.1 9.9 9.7 10.1 10.5 10.4 10.0
HDFC 10.5 11.9 12.2 11.9 11.7 11.0 10.6 9.9 9.8 9.9 9.0 7.9 9.5
BAF 24.0 20.9 20.2 19.4 19.1 19.0 19.1 17.9 18.6 20.1 17.8 18.1 18.6
CIFC 10.8 12.1 13.1 14.3 14.4 13.8 14.1 12.6 12.7 13.0 13.3 12.1 13.3
SBICARD 0.0 0.0 17.9 21.7 20.9 20.8 21.7 23.0 22.4 23.8 21.3 18.1 17.7
LICHF 10.0 10.5 10.6 10.7 10.6 10.5 10.3 9.4 9.5 9.8 9.0 8.3 8.8
SHFL 0.0 17.6 16.3 16.2 15.5 16.3 13.0 13.7 15.9 15.7 17.2 16.4 17.2
The following determinants continue to drive yield for ▪ Loan mix: While traditionally POWF has lent to GOI-
POWF: backed generation projects, incremental lending
tilting toward renewables, DISCOM should not
▪ Strong disbursements trends: Excluding the COVID-
materially distort yield momentum. Given distribution
19 slowdown, the company has sustained a 11%
and renewable projects are aligned toward GOI
CAGR in disbursements over FY11-21. With
objectives, yield should remain in steady-state
continued focus on timely disbursements to power
sector entities, including GENCO, DISCOM, and Cost of funds pressure remain restricted
TRANSCO, disbursements grew at 67% YoY to INR
Historical perspective highlights POWF's ability to
858bn as on FY23, led by the base effects.
navigate market conditions and optimize its funding cost.
Exhibit 46: Disbursements CAGR of 24% during By diversifying funding sources, sustaining strong
FY23-25E creditworthiness, and leveraging regulatory support, the
Disbursements company has positioned itself to access affordable capital,
FY11-FY16 FY17-FY22 FY23-FY25E reducing cost of funds (COF). However, with the recent
CAGR: 8% CAGR: -4% CAGR: 22%
1,400 80 rate hikes from the RBI and market anticipation of further
(INR bn)
1,200 60 global uncertainty, borrowing cost is likely to edge up for

1,000 40
800 20 the upcoming quarters.
(%)
600 0
400 (20) The company has demonstrated an effective
200 (40) management of cost of funds over time. In Q2FY13,
0 (60)
POWF had the highest cost of funds at 9.24% while the
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY23
FY24E
FY25E
lowest was recorded in Q4FY22 at 7.05%, aligning with

the rate cyclical trends. As on Q4FY23, the cost of funds
Disbursements YoY growth (RHS)
stands at 7.5%.
Exhibit 47: Increasing share of low-cost 54EC and FCB in the borrowing mix
Borrowings Mix 0.7 0.2 1.1

5.1 0.2 0.1
100 6.0 5.4 4.6
5.8 12.3 10.3 0.0 11.4 10.5 15.7 15.3 17.6
19.3 19.0 0.0 0.0 0.0 17.8
80 17.5
26.1 0.0 0.0 0.0 16.8 18.8 18.8 20.5 19.3
0.0
(%)
60
85.5 86.0 94.2 85.6
40 77.0 76.2 80.1
66.5 65.4 61.1 61.1 57.7 57.5
20
0 0.3 0.6 0.8 1.2 1.8

FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23
Bonds 54EC Bonds Other Rupee Bonds
Subordinated bonds Rupee Term Loan from Banks Foreign Currency Borrowings
Note: breakdown of bonds and STL has been recorded from FY19 in the form of bonds: 54EC Bonds, Other rupee bonds and subordinated bonds, and STL: CP and
others; Source: Company, Elara Securities Research

Exhibit 48: COF to remain under 8.5%, which is the

best in the industry…
9.5 Cost of Funds
9.0
8.5 8.9
8.0 8.6 8.8 8.7 8.5
8.4
(%)
7.5 8.2 8.1

7.8
7.0 7.5 7.5 7.4 7.5
6.5 7.0
6.8
6.0
5.5
5.0
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY23
FY25E
FY24E
Exhibit 49: … POWF enjoys lower COF vs peers

NBFC FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23
POWF 8.4 8.6 8.8 8.7 8.9 8.5 8.2 7.8 7.5 7.5 7.4 7.0 6.8
HDFC 7.1 8.8 9.3 9.4 9.2 8.7 8.1 7.8 8.1 7.9 6.7 5.7 6.8
BAF 7.5 8.8 10.3 9.6 9.7 9.2 8.8 8.3 8.1 8.2 7.2 6.6 6.6
CIFC 8.0 9.9 10.2 10.2 9.9 9.3 8.3 7.7 8.0 8.6 7.6 6.4 6.8
SBICARD 0.0 0.0 7.5 9.5 9.1 8.1 7.4 7.2 8.1 8.4 5.9 5.0 6.1
LICHF 7.8 9.1 9.5 9.5 9.3 9.0 8.6 8.2 8.2 8.2 7.2 6.6 6.9
SHFL 0.0 10.1 9.6 10.9 10.5 10.3 7.4 7.4 8.7 8.9 9.0 8.0 9.3
Given POWF’s strong control over liability management,

Exhibit 50: Rising low-cost borrowings (54EC bonds)
proactiveness in accessing debt capital markets, including
70 66
issuing bonds & debentures, and the ability to raise long- 54EC bonds
term funds at competitive rates, led by relationships with 60
(INR bn)
a wide network of domestic and international banks, we 50

40
expect COF to remain restricted to less than 8.5% levels, 40
which stands the lowest in the industry. 30 26
19
Incremental focus on cheaper borrowing sources 20
8
Increased share of cheaper borrowings: As on FY23, 10
POWF’s borrowing stands as 62% for domestic bonds, 0
19% RTL from Banks, 18% from foreign currency
borrowings, 2% subordinated bonds, 1.25% 54EC Bonds Source: Company, Elara Securities Research
and mere 0.1% for other short-term loans. The share of ▪ Issuance of low-priced Euro green bonds (first-ever in
54EC bonds and foreign currency borrowings have September 2021, amounting to EUR 300mn or INR
doubled in the past 3-4 years, led by effective liability 25.9bn with a coupon rate of 1.8% listed on the
management, and focus on competitive rates. Singapore Stock Exchange, India INX and NSE IFSC).
▪ The low-cost 54EC bond portfolio of INR 66bn in Diversifying into foreign currency borrowings: Through a
FY23, with a coupon rate of 5%, up 66% YoY, vs INR combination of foreign currency term loans in USD & JPY
40bn in FY22 for POWF. Utilization of 54EC bonds and loans from development banks, POWF has witnessed
with a coupon rate of 5% increased by 1.65x in FY23 doubling of foreign currency borrowings share over FY18-
vs FY22. 23. These borrowings also stand fairly guarded against
foreign exchange fluctuations with improvement in the
exchange risk hedge ratio at 68% in FY23, up from 55% in
FY22 and with 92% hedging of the exchange risk of
portfolios with a residual maturity of up to five years and
100% of exchange risk for the US dollar loans with a
residual maturity of up to five years.

Exhibit 51: Rapid growth in diversified FCB borrowing

Foreign currency borrowings
700 646
563
600
477498
(INR bn)
500 FY11-FY16
400 CAGR: 17%
288
300
183
200
84 89 97 108 84
100 50 56
0
FY20
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY21
FY22
Source: Company, Elara Securities Research FY23
Exhibit 52: Key borrowings growth in FCB and 54EC

(INR mn) FY17 FY18 FY19 FY20 FY21 FY22
Foreign currency borrowings (FCB):
(I) Unsecured Syndicated Foreign Currency Loans 70,724 124,621 158,521 196,356 188,132 217,815
SLN 16 16,213 16,294 17,289 - - -
SLN 17 29,183 29,329 31,120 33,924 11,026 -
SLN 28 USD - - - 18,847 18,376 18,952
SLN 28 JPY - - - 3,740 3,563 3,341
SLN 18 25,329 26,858 27,257 30,415 19,319 9,058
SLN 21 - 19,553 20,747 22,616 22,051 22,742
SLN 22 - 16,294 17,289 18,847 18,376 18,952
SLN 23 - 16,294 17,289 18,847 18,376 18,952
SLN 26 - - 17,289 18,847 18,376 18,952
SLN 27 - - 10,243 11,430 10,890 10,212
SLN 29 - - - 18,847 18,376 18,952
SLN 30 - - - - 7,351 7,581
SLN 30 - - - - 22,051 22,742
31 A FCTL USD 525M 301121 - - - - - 39,799
31 B FCTL USD 100M 301121 - - - - - 7,581
(II) Unsecured Foreign Currency Loan 2,042 31,910 46,762 1,724 1,507 1,281
ADB (Guaranteed by the GOI) 962 874 828 795 670 582
Credit National (Guaranteed by the GOI) 600 611 502 447 369 271
KFW I (Guaranteed by the GOI) 480 530 481 483 468 428
SBI FCNR(B) - 16,294 17,289 - - -
ICICI Bank FCNR(B) - IV - - 6,916 - - -
ICICI Bank FCNR(B) - III - - 6,916 - - -
ICICI Bank FCNR(B) - II - - 6,916 - - -
ICICI Bank FCNR(B) - 6,518 6,916 - - -
Bank of Baroda FCNR (B) - II - 2,013 - - - -
Bank of Baroda FCNR (B) - I - 5,071 - - - -
(III) Foreign Currency Notes 11,673 26,070 82,986 278,928 308,720 343,788
3.75% USD Bonds 2024 - - - 30,154 29,402 30,323
3.25% USD Bonds 2024 - - - 22,616 22,051 22,742
3.75% USD Green Bonds 2027 - 26,070 27,662 30,154 29,402 30,323
5.25% USD Bonds 2028 - - 20,747 22,616 22,051 22,742
1.841% EUR Bonds 2028 - - - - - 25,398
6.15% USD Bonds 2028 - - 34,578 37,693 36,752 37,904
4.50% USD Bonds 2029 - - - 45,232 44,103 45,484
3.90% USD Bonds 2029 - - - 33,924 33,077 34,113
3.95% USD Bonds 2030 - - - 56,539 55,129 56,855
3.35% USD Bonds 2031 - - - - 36,752 37,904
6.61 % Senior Notes (USPP) 2017 11,673 - - - - -
Total Foreign Currency Borrowings (I-III) 84,439 182,601 288,269 477,008 498,358 562,884
YoY Growth 116.3 57.9 65.5 4.5 12.9
54EC Bonds - 2,922 7,841 19,185 25,642 39,988
YoY Growth 168.4 144.7 33.7 55.9

Exhibit 53: Exchange risk hedged up to 92% High order credit rating
Exchange risk hedged ▪ POWF enjoys high notch “AAA” rating assigned by
100 92 92 CRISIL, CARE and ICRA-credit rating agencies. The
86
company has “Baa3” and “BBB-” credit ratings from
80 international credit rating agencies, Moody’s and
66
62
(%)
60
FITCH. As a result, cost of borrowings remain benign
for POWF
40
▪ Adequate credit lines: POWF has sanctions pipelines
20 of INR 90.3bn as on March 2022 from scheduled
commercial banks (SCB) for short-term funding, and,
0 mostly, without any commitment charges
Exhibit 54: Sustained high rating of AAA

(INR mn) FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22
Rating from credit rating agencies
Ratings assigned by domestic credit rating agencies:
Long term
CRISIL CRISIL CRISIL CRISIL CRISIL CRISIL CRISIL CRISIL CRISIL CRISIL CRISIL CRISIL
CRISIL
AAA AAA AAA AAA AAA AAA AAA AAA AAA AAA AAA AAA
ICRA
ICRA ICRA AAA ICRA AAA ICRA AAA ICRA AAA ICRA AAA ICRA AAA ICRA AAA ICRA AAA ICRA AAA ICRA AAA ICRA AAA
LAAA
CARE CARE CARE CARE CARE CARE CARE CARE CARE CARE
CARE
AAA AAA AAA AAA AAA AAA AAA AAA AAA AAA
Short term
CRISIL CRISIL CRISIL CRISIL CRISIL CRISIL CRISIL CRISIL CRISIL CRISIL CRISIL CRISIL
CRISIL
P1+ A1+ A1+ A1+ A1+ A1+ A1+ A1+ A1+ A1+ A1+ A1+
ICRA ICRA A1+ ICRA A1+ ICRA A1+ ICRA A1+ ICRA A1+ ICRA A1+ ICRA A1+ ICRA A1+ ICRA A1+ ICRA A1+ ICRA A1+ ICRA A1+
CARE CARE CARE CARE CARE CARE CARE CARE CARE CARE
CARE
A1+ A1+ A1+ A1+ A1+ A1+ A1+ A1+ A1+ A1+
Foreign currency issuer rating by int. credit rating agencies
Long term
BBB'- BBB'- BBB'- BBB'- BBB'-
Fitch Ratings BBB'- BBB'- BBB'- BBB'- BBB'- BBB'- BBB'-
/Stable /Stable /Stable /Stable /Stable
Baa3 Baa3 Baa3 Baa3 Baa3
Moody’s Baa3 Baa3 Baa3 Baa3 Baa3 Baa3 Baa3
/Stable /Stable /Positive /Positive /Stable
BBB'- BBB'- BBB'- BBB'- BBB'-
Standard & Poor (S&P) BBB'- BBB'- BBB'- BBB'- BBB'-
/Negative /Stable /Stable /Stable /Stable

Better yield, controlled cost lead to stable NIM Exhibit 55: NIM to stabilize over FY24-25
Historically on a steady-state basis, POWF has witnessed 5.0 NIM
NIM at 4.0% over FY11-17. The run-rate declined 50bp to 4.5
an average of 3.4% during FY18-23, led by the lower 4.6
4.4 4.5
(%)
4.0
interest rate cycle and pandemic-led challenges. 4.0 3.9 4.1 4.1
3.5 3.8
POWF saw a 39bp YoY decline in spread in FY23, with a 3.6 3.6 3.7 3.7
downward repricing of assets in the range of 165-300bp 3.0 3.3 3.2
3.1
driven by the low interest rate regime. As on FY23, yield 2.5
moderated by 18bp YoY to 10.0% in FY23 while COF 2.0
(reported) increased 21bp YoY to 7.5% in FY23, resulting
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY23
FY24E
FY25E
in NIM pressure during the year.
Going forward, we expect spreads to be maintained at Source: Company, Elara Securities Estimate
2.5% and NIMs (calculated on AUMs) at 3.7% (NIMs
calculated on loan assets at 3.2%) over FY23-25E to be led
by (a) the recent ~10-15bps (December 2022) and 25bps
(Mar'22) across product segments (barring renewables),
(b) floating nature of the book (c) stabilizing CoF with
~70% of borrowings being fixed in nature also
compensating for slight tilt towards low yielding assets.

Poised for high order stable ROE of 17% Sharp improvement in asset quality and a higher
likelihood of write backs would result in the lowest range
Sustainably deliver high returns
of credit cost in the range of 12-18bp during FY23-25E.
The company is experiencing robust growth in margin
and profitability. Despite a slightly elevated cost-to-income Therefore, POWF's consistent performance in terms of
ratio, it has demonstrated its ability to sustain strong ROE and ROA underscores its profitability and efficiency
margin. POWF would benefit from lower credit cost, likely in asset utilization. With a healthy PAT CAGR of 13% over
to decline to ~12-18bp over FY23-25E. This improvement FY11-23) and a stable net worth, the company has
is expected to positively affect profitability ratios. generated an average ROE of 16.6% over FY11-23. In
FY23, ROE was well ahead of the historical average of
Scalability hinges on products and increased capex in 18.2%. With healthy growth in overall asset book and
alignment with GOI’s emphasis on energy transition. We profitability, POWF generated an average ROA of 2.5%
expect a loan book CAGR of 12% over FY23-25E. over FY11-23. In FY23, ROA stood well above the historic
Stable margin, driven by the company's expertise in average at 2.9%. We expect a ROE of 15.7% and a ROA of
power financing, enables it to identify and finance 2.7% in FY25E, led by improved growth prospects and
projects with attractive interest spread. Juxtapose to that, receding asset quality stress, which, in turn, would have a
POWF’s funding cost remains lower than peers, owing to positive impact on P&L.
better liability management and further enhancement of Exhibit 56: ROA and ROE poised to post 2.7% and
profitable borrowings and stable ALM would continue to ~16% over FY23-25E
support stability in margin. We expect NIM to sustain a 25 3.5
steady trajectory at 3.7% over FY23-25E. 2.7 3.0
20
Steady operating metrics: Historically, POWF had low 2.5
15 2.0
operating metrics at an average of 5.0%. With new loan 15.7
(%)
(%)
opportunities and after factoring in increased manpower, 10 1.5
we see the cost-income ratio settling at an average of 12% 1.0
5
over FY23-25E, which remains the lowest in the industry 0.5
in our assessment. FY23 saw a sharp rise in the cost- 0 0.0
FY18
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY19
FY20
FY21
FY22
FY23
FY24E
FY25E
income ratio of 15.3%, and expenses primarily remain
front-loaded, with a 70% YoY increase in opex in FY23.
ROE ROA (RHS)
Healthy operating profit was backed by healthy NII and
stable opex, resulting in a PPOP CAGR of 31% over FY23-
25E. This is primarily led by NII growth and lower opex in
years to come.

All charged up
❑ Steady state ROE and dividend play
❑ Rerating imminent on increased growth prospects and multi-year NPA lows
❑ Initiate with a Buy with a SOTP-based TP of INR 326, implying 63% upside
Steady-state ROE and dividend play Exhibit 59: Profitable dividend yield
10 8.8
Likely to sustain high ROE of ~17%
8 7.0
Historically, POWF has had a high steady-state ROE of 6.0
17% over FY11-22. As on FY23, its ROE was at 18%, led by 6 4.5 4.6 4.8 5.0
3.5 3.9
improving growth prospects and receding asset quality 3.0
(%)
4 2.5
pressures. We expect this momentum to continue as the
company gradually diversifies beyond the traditional 2 2.5
0.0
lending segments and incremental delinquency stands 0
restricted.
FY22
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY23
Strong dividend payer
POWF has made high dividend payouts, rising from 25%
Exhibit 60: High dividend payout
in FY16 to as much as 33.6% in FY22. It climbed to 39.8%
in FY23. Likewise, the dividend yield stood at 8.6% for Dividend payout ratio
80 74.5
FY23 vs 5.9% in FY22 vs 2.0-4.0% historically. Moreover,
from its 52.6% stake in REC, POWF also generates 60
44.4
dividend income of INR 12.7bn in FY22, up from INR 39.8
(%)
40 30.5 30.8 33.6

11.4bn in FY21. 28.5 21.2
20 12.1 10.8 25.0
3.0 0.0
0
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY23
Adequate capital and liquidity buffers

The company has a robust capitalization level with a total
CAR at 24.4% as on FY23-end. Moreover, it maintains INR
190bn as on FY23 as cash & bank balances and
investments.
Exhibit 57: Strong liquidity profile

(INR mn) FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24E FY25E
Cash & cash
23,503 19,882 47,538 602 50,708 785 429 5,377 3,101 1,825 37,176 7,209 221 244 268
equivalents
Bank Balance - - - - - - 35,303 155 138,905 165 10,446 32,403 15,960 19,950 24,937
Investments 539 592 1,615 3,522 8,513 26,775 38,704 25,200 165,862 164,733 159,735 160,843 173,041 174,772 195,744
Total 24,041 20,474 49,153 4,124 59,221 27,559 74,435 30,732 307,868 166,723 207,357 200,455 189,222 194,965 220,949
Exhibit 58: Adequate capital and leverage <6x place POWF favorably to ride 10%+ growth story
Particulars FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23
Tier 1 CARR (%) 14.7 15.4 16.8 16.4 17.0 17.1 16.2 17.0 15.4 12.5 15.5 20.0 22.4
Debt/Equity (x) 5.80 5.68 6.26 6.36 6.43 5.61 5.55 6.21 6.66 6.72 6.20 5.38 5.32
Assets/Equity (x) 6.89 6.55 7.18 7.09 7.10 6.90 7.14 7.57 7.96 8.01 7.48 6.65 6.52

Rerating imminent Rerating hinges on two parameters

▪ Strong and sustained growth visibility
Increased growth prospects, multi-year NPA lows
▪ Continued asset resolutions and controlled
As on FY23-end, P/ABV stood at 0.5x on average, which
incremental delinquency
is lower than the past six-year median, whereas ROE
increased on average by 90bp vs the six-year median. With higher power industry capex, consistent GoI support
Mounting state electricity board (SEB) losses, the slow (schemes & subsidies), diversifying loan products
pace of asset resolution, and pandemic challenges can be increasing growth avenues, accelerating asset resolution
attributed to its underperformance. The six-year median and stable spread, consistently high ROE and dividend
ROE of 17.0% has increased to 18.2% in FY23 as key play story would be buttressed by strengthening credit
challenges receding and growth visibility. After traction and quality.
prolonged underperformance against the NIFTY50 Index
by 138% over FY11-22, POWF has outperformed the
Index by 36% in the past year.
Exhibit 61: Multi-year breakout

POWF NIFTY50 POWF vs
Period (%)
performance performance Nifty50
1 Months 7.4 2.6 4.8
3 Months 25.5 7.1 18.4
1 Year 51.6 11.8 39.9
5 Year 126.0 72.6 53.4
10 Year 99.3 209.6 (110.3)
Note: performance as on 31 May 2023; Source: Bloomberg, Elara Securities Research
Exhibit 62: FY23 multiple stands at 0.5x and ROE 90bp lower than the six-year median
P/BV (FY25E) P/BV (FY23) P/BV (FY18-23) Six-year median ROE FY23 ROE FY25E ROE
NBFC
(x) (x) (x) (%) (%) (%)
HDFC 3.1 3.8 5.2 13.2 12.8 13.5
CIFC 4.7 7.1 11.9 20.0 20.8 20.7
MGFL 0.9 1.3 1.7 20.6 16.6 17.4
PFC 0.6 0.8 1.3 17.3 18.2 15.7
MUTH 1.8 2.5 3.8 23.1 16.5 16.7
AAVAS 2.7 3.6 5.2 12.8 14.2 16.7
CREDAG 2.7 4.2 6.3 15.3 17.8 20.9
BAF 5.2 7.9 12.6 20.1 24.2 22.0
SBICARD 5.3 8.3 14.1 26.8 25.7 25.7
LTFH 1.2 1.5 1.7 11.7 9.5 11.7
MMFS 2.2 2.4 2.7 10.1 12.1 16.2
LICHF 0.8 1.0 1.3 14.0 11.2 13.7
SHFL 1.0 1.5 2.5 16.1 17.3 14.9
Note: Pricing as on 26 June 2023; Source: Company, Elara Securities Estimate

High return profile

POWF is among the top NBFC with a high return profile
of 18.2% ROE and 2.9% ROA in FY23, backed by high
growth expansion and strong asset quality with superior
return profile firms, such as SBI Cards (SBICARD) with a
ROE of 25.7% and 5.4% ROA, Muthoot Finance (MUTH)
with a ROE of 16.7% and a ROA of 5.1%, Credit Access
Grameen (CREDAG IN) with a ROE of 20.9% and a 4.7%
ROA, and Cholamandalam Investment and Finance (CIFC
IN) with a ROE of 20.7% and a ROA of 2.6%.
Exhibit 63: POWF DuPont analysis -- ROA calculation as a % of average AUM

(annualized) FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23
Interest Income 11.2 11.3 11.6 11.9 12.1 11.9 10.8 9.7 9.6 9.7 10.1 9.9 9.5
Interest Expense 7.2 7.4 7.6 7.4 7.6 7.2 6.8 6.5 6.4 6.6 6.5 6.1 5.9
Net Interest income 4.0 3.9 4.1 4.4 4.5 4.6 4.1 3.3 3.2 3.1 3.6 3.8 3.6
Other Income 0.1 0.1 0.2 0.3 0.2 0.2 0.3 0.2 0.1 0.4 0.5 0.5 0.5
Total Income 4.2 4.0 4.3 4.8 4.7 4.9 4.4 3.4 3.3 3.5 4.1 4.3 4.1
Opex 0.2 0.3 0.2 0.2 0.1 0.1 0.2 0.3 0.3 0.7 0.2 0.4 0.6
Staff 0.1 0.1 0.1 0.0 0.0 0.0 0.0 0.1 0.1 0.1 0.1 0.1 0.1
Other Opex 0.1 0.2 0.1 0.1 0.1 0.1 0.1 0.2 0.2 0.6 0.2 0.3 0.6
Pre-Provisioning Profit 4.0 3.7 4.2 4.6 4.5 4.7 4.2 3.1 3.0 2.8 3.8 3.9 3.5
Provisions 0.0 0.1 0.1 0.3 0.4 0.7 2.1 0.9 (0.3) 0.3 1.0 0.6 (0.1)
PBT 3.9 3.6 4.1 4.3 4.1 4.0 2.1 2.2 3.3 2.5 2.9 3.3 3.6
Tax 1.0 0.9 1.1 1.2 1.2 1.3 1.2 0.6 1.0 0.8 0.5 0.6 0.6
PAT (RoA) 2.9 2.6 3.0 3.1 2.9 2.7 0.9 1.7 2.3 1.7 2.4 2.7 2.9
ROE 18.4 16.9 20.0 21.3 20.0 18.0 6.0 12.1 17.3 12.8 17.3 17.9 18.2
Exhibit 64: Robust earnings performance over the years

Particulars FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24E FY25E
AUM
(INR mn) 996,010 1,302,100 1,604,530 1,889,940 2,175,150 2,389,200 2,455,250 2,793,290 3,146,670 3,449,050 3,707,720 3,731,350 4,224,980 4,731,298 5,319,868
YoY growth (%) 25 31 23 18 15 10 3 14 13 10 7 1 13 12 12
Disbursements
(INR mn) 318,660 398,170 451,520 468,750 446,910 465,990 627,980 643,240 676,780 679,980 883,000 512,410 857,560 1,077,286 1,269,674
YoY growth (%) 30 25 13 4 (5) 4 35 2 5 0 30 (42) 67 26 18
NII 36,150 45,110 59,318 77,731 91,469 106,056 98,374 86,061 94,451 100,972 129,513 140,299 143,627 164,790 187,211
YoY growth %) 17 25 31 31 18 16 (7) (13) 10 7 28 8 2 15 14
OPEX 1,607 3,254 2,336 3,097 2,475 3,243 3,825 7,882 8,344 23,341 8,684 14,701 25,087 17,724 24,298
YoY growth (%) 6 102 (28) 33 (20) 31 18 106 6 180 (63) 69 71 (29) 37
Provisions 318 1,428 809 4,699 8,429 17,056 50,936 23,910 (8,715) 9,912 34,964 22,221 (2,962) 5,561 9,285
YoY growth (%) (5,677) 349 (43) 481 79 102 199 (53) (136) (214) 253 (36) (113) (288) 67
PAT 26,196 30,317 44,196 54,178 59,593 61,135 21,264 43,868 69,529 56,551 84,440 100,219 116,055 124,786 137,430
YoY growth (%) 11 16 46 23 10 3 (65) 106 58 (19) 49 19 16 8 10
Net worth 151,825 207,075 235,762 273,746 322,192 357,660 354,251 369,562 432,880 451,641 523,931 593,503 682,022 806,808 944,238
YoY growth (%) 14 36 14 16 18 11 (1) 4 17 4 16 13 15 18 17
EPS (INR) 23 23 33 41 45 46 8 17 26 21 32 38 44 47 52
YoY growth (%) 11 1 46 23 10 3 (83) 106 58 (19) 49 19 16 8 10
Book value 132 157 179 207 244 271 134 140 164 171 198 225 258 306 358
YoY growth (%) NM 19 14 16 18 11 (50) 4 17 4 16 13 15 18 17

In FY17, POWF ROA decreased to 0.9% and ROE by 6.0% In our view, the next round of valuation re-rating is an
vs 2.7% and 18.0% in FY16, respectively, largely led by inevitable outcome for power financing firms riding on
higher provisioning and staff expenses. Over FY18-23, macro tailwinds (high power capex, and GOI-support
ROA rose from 1.7% in FY18 to 2.9% in FY23, ROE schemes & subsidies), diversifying loan growth avenues,
increased from 12.1% in FY18 to 18.2% in FY23, primarily accelerating asset resolutions and stable spreads. The
driven by lower provision. consistent high ROE and dividend play story would be
buttressed by strengthening credit traction and quality.
Exhibit 65: Low mutilple, high ROE positions POWF as
the best in the industry Initiate with a Buy and a TP of INR 326
30 We expect an impressive set of earnings led by 12% loan
SBICARD
Canfin CAGR, a 14% NII CAGR, a 50-60bp opex-AUM ratio, and
25 MUTH CREDAG less than 20bp credit cost would translate into an average
REC
FY25E RoE (%)
MGFL AAVAS ROA of 2.8% and ROE of ~17% over FY23-25E.

20
BAF
SUF CIFC
15 We initiate on POWF with a Buy rating and a TP of INR
SHFL
MMFS HDFC 326 based on a SOTP valuation, arriving at the core book
10 PFC
LICHF LTFH multiple of 0.8x FY25E P/ABV and value of 52.6% stake in
5 REC.
0.0x
1.0x
2.0x
3.0x
4.0x
5.0x
6.0x
Exhibit 68: Core valuations for POWF at 0.8x FY25E

FY25E PABV (x)
(FY25E) (INR)
Source: Elara Securities Estimate
Fair price - EVA (Enterprise value method) 125.0
Exhibit 66: Low valuation and healthy ROA of a power Fair price – BV (2-stage Gordon growth model) 415.4
financing juggernaut Average price (average of above two) 270.2
6 MUTH SBICARD Target P/ABV (x) 0.8
CREDAG
5 MGFL Target P/E (x) 5.2
FY25E RoA (%)
Note: Pricing as on 26 June 2023: Source: Elara Securities Estimate

4 BAF
PFC AAVAS
SHFL Exhibit 69: SOTP price at INR 326
3 MMFS
Net Multiple &
SUF (FY25E) (INR mn)
2 CIFC worth shareholding
REC Canfin A) Value of POWF 944,238 0.8x 768,983
1 HDFC
LICHF LTFH B) REC 266,985 52.6% 140,434
0
C) Less: 30% holding discount 49,152
0.0x
1.0x
2.0x
3.0x
4.0x
5.0x
6.0x
D) Net value of REC (B-C) 91.282

FY25E PABV (x)
E) Total value of POWF (A+D) 860,265
Source: Elara Securities Estimate
F) Outstanding shares of
2,640
Exhibit 67: Valuation does not price in strengthening POWF (mn)
growth and asset quality prospects G) Target Price (INR) (E/F) 326
H) Upside (%) 63.0
1.2
I) CMP (INR) 200
1.0
Note: Pricing as on 26 June 2023; Source: Elara Securities Estimate
(x)
0.8 0.8x
Key risks to our call
0.6 0.6x ▪ Slow pace of bad asset resolution: If stressed assets
0.4 0.4x take longer to resolve under or outside NCLT, it will
0.2
delay improvement in asset quality
Mar-11
Mar-12
Mar-13
Mar-14
Mar-15
Mar-16
Mar-17
Mar-18
Mar-19
Mar-20
Mar-21
Mar-22
Mar-23
Mar-24
Mar-25
▪ Economic downturn: A slowdown in the economy

and reduced economic growth will restrict growth in
P/BV Stdev 1+ stdev 1- stdev the power sector, which would subsequently lead to
Source: Bloomberg, Company, Elara Securities Estimate
a lag in growth projections

Company description
Power Finance Corporation (POWF IN) is India's largest government-owned non-banking financial company (NBFC)
which provides funding to the power sector. The company was founded in 1986 and it is the nodal agency for the
Revamped Distribution Sector Scheme (RDSS), ultra mega power projects (UMPP), Integrated Power Development
Scheme (IPDS), and bid process coordinator for independent transmission projects (ITP). POWF is a Schedule-A
Maharatna Central Public Sector Enterprises (CPSE). Its portfolio includes financial products and services, such as rupee
term & short-term loans, equipment lease financing, and transitional financing services for various power projects in
the generation, transmission, and distribution sectors. Its clients include central, state & private power sector utilities
(including independent power producers), joint sector power utilities and power equipment manufacturers. The
company is well-positioned to continue to grow, as there is a large and growing demand for power sector funding in
India. As on FY23, it has a loan portfolio of INR 4,225bn.
Board of Directors & Management

Name Age Designation Education Experience Remuneration
(INR)
Parminder 55 Director (Finance) and Bachelor’s degree in Commerce. 35 years of experience in power 7,383,370
Chopra additional charge of CMD Cost Accountant. and MBA sector, including with NHPC,
PGCIL and PFC
Rajiv Ranjan 56 Director (Projects) Bachelor’s degree in Science 34 years of experience as 1,296,641
Jha Mechanical Engineering from Executive Director (Projects)
NIT Jamshedpur of Ranchi since May 27, 2019
University. Diploma in
Management from IGNOU
Manoj Sharma 56 Director (Commercial) Chartered Accountant with a 30 years of experience in power
Chairman of PFC Projects and degree in Law (LLB) sector
Jharkhand Infrapower
Ajay Tewari 52 Director Bachelor’s degree in Electrical Prior to joining the Indian
(government nominee) Engineering from Indian Administrative Service in 1993,
Institute of Technology. PG worked at GAIL and the
Diploma in Financial Ordnance Factory at Nagpur
Management
Bhaskar 64 Independent Director Bachelor’s degree with Honors Advocate for 25 years.
Bhattacharya in Commerce and Law Chairman of Hooghly Tax
Post Graduate Diploma in Advocates Bar Association and
Business Management Member of West Bengal
Taxation Tribunal
General Secretary with NGO,
Nibedan
Usha Sajeev 46 Independent Director Bachelor’s degree in Arts Entrepreneur from Dadra &
Nair Social Worker Nagar Haveli and Daman & Diu
Prasanna 40 Independent Director Bachelor’s degree in Commerce, Associate Professor of Finance at
Tantri Mangalore University the Indian School of Business
ICWA, Institute of Cost Executive Director of the Centre
Accountants of India for Analytical Finance at ISB
FPM, Indian School of Business
PGP, Indian School of Business
PhD, Deakin University
RC Mishra 66 Independent Director Indian Administrative Service 40 years of experience in the
(IAS) in 1978 power sector
Master’s degree in Science from
University of Allahabad
Master’s degree in Business
Administration from University
of Ljubljana, Slovenia

Annexure 1
Power sector schemes that bolster the power financing outlook
Parameter Restructured Integrated Power Revamped National Smart Ujwal DISCOM Pradhan Mantri Deen Dayal Ultra Mega Power Independent Payment Pilot Scheme I Pilot Scheme II Late Payment
s and Accelerated Development Distribution Sector Grid Mission Assurance Yojana Sahaj Bijli Har Upadhyaya Gram Projects (UMPP) Transmission Ratification and (Flexibility (Performance Surcharge (LPS)
Schemes Power Scheme (IPDS) Scheme (RDSS) (NSGM) (UDAY) Ghar Yojana Jyoti Yojana Projects (ITP) Analysis in Power Scheme) Scheme)
Development and (Saubhagya) (DDUGJY) Procurement for
Reforms scheme bringing
Programme Transparency in
(R-APDRP) Invoicing of
Suppliers
(PRAAPTI portal)
Year of 2008. Sunset date: 2014. Sunset date: June 2021, 2015 2015 2017. Successfully Nov 2014. 2005 Introduced in 2018 2019 2020 2022
launch Dec 31, 2017 Mar 31, 2022 implementation completed and Successfully 2003 as a part of
(excluding period: (FY22 to closed in Mar completed and Electricity Act
identified FY26)) 2022. closed in Mar
Projects). 2022
ATC LOSSES DISCOMS DISCOMS DISCOMS DISCOMS GENCOS- DISCOMS GENCOS TRANSMISSION GENCOS GENCOS GENCOS GENCOS
RENEWABLES
GoI's (1) Reduce (1) Strengthen the To make the To modernize the (1) Under the Provide energy Flagship scheme (1) Development MoP initiated For bringing For procuring Provides a
objective aggregate power distribution distribution sector country's power UDAY scheme, access to all by last of GOI covering of Ultra Mega Tariff Based transparency in 2,500 mw of mechanism for
technical and system in urban more efficient and distribution state governments mile connectivity all aspects of rural Power Projects Competitive monitoring of power on settlement of o/s
commercial areas across the financially system and make were required to and electricity power distribution (UMPPs), with a Bidding (TBCB) GENCOs dues at competitive basis dues of GENCO’s,
(AT&C) losses of country. sustainable. it more efficient, take over 75% of connections to all capacity of about Process for the national level. for three years Inter-State
power distribution (2) Improve the reliable, and the DISCOM debt remaining un- 4,000 MW each, development and from generators Transmission
companies efficiency, sustainable. as of 30 electrified (2) Adopting strengthening of with Licensees and
(2) improve their reliability, and September 2015. households in super critical Transmission commissioned Electricity Trading
operational quality of power 50% to be taken rural as well as technology system through projects but Licensees.
efficiency. supply in cities over in 2015-16 urban areas to private sector without power
and towns with a and 25% in 2016- achieve universal participation. purchase
population of over 17 household agreements.
1 lakh. electrification in
the country.
POWF (1) Designated (1) Support the (1) PFC and Is a central PSU (1) Designated as (1) PFC Consulting PFC's arm PFC (1) Designated by
Role nodal agency modernization subsidiary REC that provides a Nodal Agency Limited (PFCCL), a Consulting is the MoP, as the Nodal
(2) Receive a fee and upgradation are designated financial and Central wholly owned nodal agency and Agency for
as well as of the power nodal agencies for assistance to Electricity subsidiary of PFC, PTC India is the implementation of
reimbursement of distribution the various power Authority (CEA) as is nominated as aggregator for the LPS Rules’ 2022.
expenditure in system in India operationalization projects in India, the Technical 'Bid Process scheme. (2) Responsible for
implementation of and of the scheme for including smart Partner by MoP Coordinator' by all the activities
the program as (2) Facilitate the 20 States/UTs grid projects (2) Has set up a MoP, GoI for the related to
per the norms to delivery of reliable under the SPV to secure development of implementation of
be decided by the and quality power Scheme. clearances, ITP. said rules
R-APDRP Steering supply to (2) Partnered with acquire land and (2) As on 31 Mar including regular
Committee consumers in the GoI to water and obtain 22, 40 SPVs, 2 by review and
(3) A single urban areas. improve the a commitment for PFC and other 38 monitoring.
window service quality, reliability, coal to fast-track by PFCCL have (3) Entrusted with
under R-APDRP. and affordability UMPPs for private been established task of
of power supply companies. for ITPs. coordinating with
to consumers. (3) Has (3) In April & May all States/UTs,
incorporated a 2022, PFCCL has DISCOMs,
total of 19 wholly incorporated 5 GENCOs, CTU,
owned SPVs for new SPVs for Trading Cos,
14 UMPPs. Out of development of POSOCO,
these, 4 UMPPs transmission FIs/Banks etc. to
have been schemes. ensure timely flow
transferred to (4) As on date, out of requisite
successful bidders of 45 SPVs, 31 information/data
and as per the SPVs were pertaining to
direction of MoP transferred to the implementation of
and respective successful bidders the Rules.
State and bidding
Governments, PFC process for 8 SPVs
/ PFCCL is in the are under
progress. Due to

Suppliers
(PRAAPTI portal)
process of closure de-notification of
of 4 UMPPs. schemes by MoP,
2 SPVs were
closed, other 3
SPVs are under
process of closure
and 1 scheme is
under abeyance.
Key (1) Reduction of (1) Strengthen the (1) Reduce (1) Modernize (1) Improve the (1) Achieve (1) Strengthen the (1) Improve the (1) Develop (1) To bring To promote the Improve the Mechanism for
Objectives AT&C losses up to sub-transmission Aggregate power financial health of universal sub-transmission efficiency of transmission transparency in adoption of new performance of settlement of
of the 15% level through and distribution Technical and transmission and state-owned household and distribution power generation capacities in India the invoicing and technologies that coal-based power outstanding dues
scheme strengthening & networks in urban Commercial distribution infra power distribution electrification network in rural by incorporating (2) Bring in the payment would make the plants and reduce of GENCOS, Inter-
up-gradation of areas (AT&C) losses of (2) increased use companies (2) Reduce the use areas state-of-the-art potential investors processes Indian power their State Transmission
Sub Transmission (2) Metering of DISCOMs to 12- of renewable (DISCOMs) in of kerosene for (2) Separate technology and after developing between GENCO sector more environmental Licensees and
and Distribution distribution 15% by FY25. energy sources India lighting purposes agriculture and sustainable such projects to a and DISCOM. flexible, efficient, impact, while also Electricity Trading
network and transformers, (2) Reduce ACS- (3) Reduce carbon (2) Reduce gap in rural areas non-agriculture practices. stage having (2) To enable real- and sustainable, promoting the use Licensees.
adoption of IT feeders, and ARS gaps to zero emissions & between cost of (3) Promote feeders to ensure (2) Enhance the preliminary survey time tracking of and enable it to of renewable
during XI Plan. consumers by FY 25 promote power supply and renewable energy uninterrupted competitiveness of work, payments and meet the growing energy sources
(3) ERP and IT (3) Improve sustainable revenue sources such as power supply to the power sector (3) Identification invoicing, as well demand for and indigenous
enablement of the quality, reliability development generated by solar energy for agriculture by attracting of route, as the electricity in the coal
distribution sector and affordability (4) Develop robust DISCOMs household (3) Set up micro- private investment (4) Preparation of reconciliation of country.
and of power supply & secure ICT infra (3) Reduce electrification in grid and off-grid and promoting survey report, o/s payments
strengthening of to consumers to support power DISCOM debt remote and off- distribution competition and (5) Initiation of between GENCO
the distribution through a system burden and grid areas. network in remote innovation. process of land and discoms.
network under R- financially interest costs areas where grid (3) Meet the acquisition for
APDRP by sustainable and (4) Reduce AT&C connectivity is not increasing sub-stations,
carrying forward operationally losses of DISCOMs feasible. demand for (6) Initiation of
the approved efficient (4) Rural power. process of seeking
outlay for R- distribution sector. Electrification forest clearance, if
APDRP to IPDS. component under required etc.
(4) Reduction of the RGGVY 12th
Aggregate and 13th plans,
Technical and subsumed to
Commercial DDUGJY.
(AT&C) losses
(5) Improvement
in the quality and
reliability of power
supply
Other (1) Focus on (1) Smart (1) Provide Enhance (1) Ensure (1) Improve the (1) To provide (1) Ensure energy (1) Increase (1) Provides a (1) Incentivize (1) Incentivize
Objectives establishment of metering solution financial efficiency and reflective tariffs quality of life by 24x7 electricity security by competition platform for GENCO to GENCO to
base line data. for performing assistance to state reliability of the that recover the providing better supply to rural diversifying the (2) Attract private GENCO to file increase the improve the
(2) Fixation of UDAY States and DISCOMs for power system cost of supply access to households, energy mix and investment complaints flexibility of their performance of
accountability. Solar panels on various projects (2) Encourage healthcare, agriculture pump reducing (3) Enhance grid regarding coal-based power their coal-based
(3) Enhance Govt. buildings related to system energy education, and sets, and rural dependence on reliability overdue plants. power plants.
financial viability. with net-metering. strengthening, conservation and other basic industries imported fuels. (4) Facilitate payments, and for (2) Reduce the (2) Promote
(4) Promote (2) Gas Insulated metering, prepaid demand-side amenities (2) To install (2) Promote renewable energy discoms to view cost of electricity adoption of new
energy Sub-stations (GIS) smart metering & management. (2) Promote meters on economic growth integration and respond to generation and technologies that
conservation. at locations where system metering (3) Improve economic distribution by creating (5) Improve these complaints. improve the improve efficiency
(5) Improve space constraint based on meeting operational development by transformers and employment efficiency (2) To create a reliability of the of coal-based
operational exists pre-qualifying efficiency of the enabling use of feeders to monitor opportunities and dashboard that power supply. power plants,
efficiency (3) Real Time-Data criteria and power sector modern the power supply stimulating provides real-time (3) Encourage the reduce emissions,
Acquisition System achieving basic appliances and and prevent economic activity information on integration of and optimize the
(RT-DAS) Projects minimum technologies power theft in the regions payment renewable energy use of coal.
for accurate benchmarks in where they are reconciliation and sources into the (3) Reduce the
measurement of reforms, and IT located. outstanding dues. power grid by cost of electricity
power enablement, (3) To allow users providing a more generation and
interruption among others. to generate flexible and improve the

Suppliers
(PRAAPTI portal)
parameters like (2) Improve reports on adaptable power reliability of the
SAIDI/ SAIFI at operational payment system. power supply.
11KV feeder level efficiency of performance and (4) Improve the (4) Encourage the
(4) Providing DISCOMs and overdue efficiency of coal- integration of
access to 24x7 promote financial payments. based power renewable energy
power supply to viability. (4) To improve the plants and reduce sources into the
all consumers (3) Improve billing efficiency of the their emissions. power grid by
(5) Enhancing and collection power sector in providing a more
consumer efficiency of India by bringing flexible and
satisfaction DISCOMs. transparency and adaptable power
(4) Promote accountability to system.
energy the invoicing and (5) Promote use of
conservation. payment indigenous coal in
(5) Encourage processes. the power sector
DISCOMs to adopt and reduce India's
cost-reflective dependence on
tariffs to ensure imported coal.
their financial
sustainability.
Operation (1) Scheme outlay: (1) Scheme (1) Scheme outlay: (1) Scheme (1) Scheme (1) Scheme As of Mar’ 23
al details INR 440,110mn Outlay: INR INR 30,37,580mn Outlay: INR Outlay: INR Outlay: INR (1) PFC Sanctions:
Scheme (2) GoI/budgetary 326,120mn + INR (2) Government 21,069.5mn (incl. 163,200mn 758,930mn INR 1,055,660mn
Outlay support: INR 440,110mn (R- grant: INR Phase 1 -3) (2) Budgetary (2) Budgetary (cumulative)
(INR mn) 227,270mn APDRP) 976,310mn (2) Budgetary Support: INR Support: (2) PFC
(3) PFC (2) Budgetary (3) PFC Support: INR 123,200mn 630,270mn disbursements:
disbursements: Support: INR disbursement: INR 6,954.2mn (incl. (especially for (3) Total Infra INR 329,090mn
INR 36,160mn 253,540mn + INR 5,370mn to Phase 1 -3) rural) outlay: INR (cumulative)
(cumulative) for 227,270mn (R- Discoms of AP, (3) Outlay for rural 70,690mn
Part B APDRP) Gujarat and HP households: INR (4) Total infra
(3) PFC towards Phase – I 140,250mn budgetary
disbursement: INR advance of 5% of (4) Budgetary Support: INR
4,400mn GoI Grant for support for rural 53,020mn
(4) GOI Grant of implementation of households: INR (5) 60% of the
INR 670mn for Loss Reduction 105,875mn project cost (85%
IPDS other than Projects, as per (5) Outlay for for special States)
Project head and RDSS guidelines urban is provided as
INR 290mn under households: INR grant by GOI and
Part C of R-APDRP 22,950mn additional grant
to PFC (6) Budgetary up to 15% (5% for
(5) INR 3,500mn support for urban special States) on
GOI grant for households: INR achievement of
implementation of 17,325mn prescribed
PMDP-2015 in J&K milestones.
through PFC
Loan (1) Part-A includes (1) Part A covers
offerings projects for metering works
and establishment of (prepaid smart
services baseline data and metering for
(as per the IT applications for consumers &
scheme) energy system metering)
accounting/auditi and distribution
ng & IT based infrastructure
consumer service works (loss
centers. reduction;
(2) Part-B includes modernization &
regular system
distribution augmentation
strengthening components).

Suppliers
(PRAAPTI portal)
projects and will (2) Part B covers
cover system training &
improvement, capacity building
strengthening and other
and enabling &
augmentation etc. supporting
activities.
Other Key The ongoing (1) The ongoing (1) The ongoing (1) NSGM's three (1) Implemented (1) ITPs are subject (1) Provides (1) Provide for
data approved projects approved projects approved projects tier hierarchical in most states in to regulation by a updated monthly clubbing of all o/s
under IPDS/R- under IPDS/R- under IPDS/R- structure: India and has had government or information to all dues (as on
APDRP have been APDRP have been APDRP have been 1st Level – some success in independent stakeholders 03.06.2022)
subsumed in RDSS subsumed in RDSS subsumed in Governing improving the regulatory body regarding power including
(2) Despite the RDSS. Council, headed financial health of to ensure that purchase dues of Principal, LPS etc.
pandemic hit last (2) States actively by MoP. DISCOMs. they comply with DISCOMs towards into a
2 years, work in formulating state 2nd Level – (2) The scheme safety and Central consolidated amt
546 out of 547 specific action Empowered has faced some reliability Generation which can be paid
sanctioned plans Committee, criticism for not standards and do Stations, IPPs and in interest free
circle/projects (3) Projects headed by being able to fully not engage in RE providers. EMIs. The max
declared sanctioned for 28 Secretary (Power). address the anti-competitive (2) The portal is number of such
complete, with discoms in 13 Supportive Level – structural issues in behavior. helpful for all EMIs can be 48
99% physical states by Technical the power sector (2) The specific stakeholders and based on the
progress monitoring Committee, and for the details of ITPs can also for quantum of the
committee – 14 headed by burden of the vary depending monitoring total o/s dues. The
each of PFC and Chairperson CEA. tariff hikes falling on the country or performance on rules also indicate
REC 3rd Level – NSGM disproportionately region in which DISCOMs under modalities for
(4) Nodal Project on certain they are Additional implementation
agencies are Management consumer groups. implemented. Borrowing and also penalties
eligible for 0.50% Unit. (3) Balance 25% Scheme, RDSS etc. for not making
of the total of the (2) The head, of debt to remain payments, in line
Gross Budgetary Director of NPMU with the DISCOMs with the Re-
Support (GBS) (NSGM Project as under: determined
component of Management - Issued as State- Payment
projects approved Unit) is the backed DISCOM Schedule.
by Monitoring Member of the bonds; or (2) Non-payment
Committee as its Governing - Re-priced by of current dues by
fee. All State- Council and Banks/FIs at int DISCOMs, one
owned Empowered rate not more month after the
distribution Committee, and than bank base due date of
companies and Member Secretary rate + 0.10% payment or 2&1/2
State/UT Power of Technical (4) States to take months after the
Dept. excluding Committee. NPMU over future losses presentation of
private sector is implementing of DISCOMs as per power bill,
companies are agency for trajectory in a whichever is later,
eligible for operationalizing graded manner. shall attract
financial the Smart Grid - 0% of loss of regulation of
assistance under activities in the FY15 and FY16; power as laid
the Scheme. country under the - 5% of FY17; down in the LPS
(5) Up to Dec22, guidance of - 10% of FY18; rules, 2022.
GoI approved Governing - 25% of FY19 &
projects: INR Council and - 50% of FY20
1,166,140mn to Empowered - Balance to be
DISCOMs of AP, Committee. Each financed through
Gujarat, HP, of the States will State
Kerala, MP, also have a State bonds/DISCOM
Uttarakhand, Level Project bonds backed by
Haryana, Management Unit State Govt
Jharkhand, (SLPMU) which guarantee, to the
Maharashtra, would be chaired extent of loss

Suppliers
(PRAAPTI portal)
Puducherry & by the Power trajectory finalized
Punjab under Secretary of the with MoP.
RDSS. State. (5) Jharkhand and
(6) PFC is also (3) The Smart Grid J&K given special
supporting the Knowledge dispensation for
States by Centre (SGKC) takeover of
preparing Model being developed outstanding CPSU
Bidding by POWERGRID dues
Documents for with funding from
Automation and MoP will act as a
ERP projects Resource Centre
under RDSS. for providing
(7) Part-B technical support
component of to the Mission in
RDSS focuses on all technical
the human matters, including
resources and skill development of
development technical
while including manpower,
capacity building capacity building,
initiatives on outreach,
corporate suggesting
governance, curriculum
technical matters, changes in
advance technical
technology education etc.
intervention areas,
new business
processes etc.
(8) MoP has
mandated PFC for
taking-up skill
development for
Smart Metering
works as well as
training program
for DISCOM
employees. Up to
March 2022, total
31 training
programs were
conducted
through NPTI
covering 1,168
DISCOM
personnel.
(9) PFC is also
handholding the
Discoms in
incorporating
better corporate
governance
practices
Source: Ministry of Power, Company, Elara Securities Research

Annexure 2: Maharatna Status

‘Maharatna’ Central Public Sector Enterprise (CPSE)
PFC and REC have been accorded with the Maharatna status. The grant of ‘Maharatna’ status to these companies imparts
enhanced powers to the Board while taking financial decisions. The Board of a ‘Maharatna’ CPSE can make equity
investment to undertake financial joint ventures & wholly owned subsidiaries and undertake mergers & acquisitions in
India and abroad, subject to a ceiling of 15% of the net worth of the concerned CPSE, limited to INR 50bn in one project.
The Board also can structure and implement schemes relating to personnel and human resource management & training.
With this, companies also can enter technological joint ventures or other strategic alliances.

Acronyms and abbreviation

Acronym Full Form Agency Full Form
ACS Average cost of supply BERC Bihar Electricity Regulatory Commission
ALM Asset liability management CEA Central Electricity Authority
ARR Average revenue realized CERC Central Electricity Regulatory Commission
AT&C Aggregate Technical and Commercial losses CPSE Central Public Sector Enterprises
AUM Assets under management GOI Government of India
ckm Circuit kilometer MOP Ministry of Power
COF Cost of fund MSEDCL Maharashtra State Electricity Distribution
DISCOM Distribution company NCLT National Company Law Tribunal
EV Electric vehicle NEF National Electricity Fund
EVA Economic value added RITES Rail India Technical and Economic Service
FCB Foreign currency borrowing SEB State Electricity Board
FGD Flue gas desulfurization
GENCO Generation company
NDC Nationally determined contributions Ticker Full form
OEM Original equipment manufacturer HDFC HDFC
Cholamandalam Investment and Finance
PL Personal loans CIFC
Company
PSL Priority sector lending MGFL Manappuram Finance
RTL Rupee term loan MUTH Muthoot Finance
T&D Transmission and distribution AAVAS AAVAS Financiers
TRANSCO Transmission company CREDAG CreditAccess Grameen
BAF Bajaj Finance
SBICARD SBI Cards and Payment Services
Scheme and
Full form LTFH L&T Finance Holdings
project
COP Conference of the parties MMFS Mahindra Finance
DDUGJY Deendayal Upadhyaya Gram Jyoti Yojana LICHF LIC Housing Finance
IPDS Integrated Power Development Scheme SHFL Shriram Finance
ITP Independent Transmission Projects PFC Power Finance Corporation
LPS Late Payment Surcharge Rules REC Rural Electrification Corporation
NSGM National Smart Grid Mission CANF Can Fin Homes
Reformed Accelerated Power Development and
R-APDRP SUF Sundaram Finance
Reform Programme
RDSS Revamped Distribution Sector Scheme EESL Energy Efficiency Services
SPV Special Purpose Vehicle
TBCB Tariff Based Competitive Bidding
UDAY Ujwal DISCOM Assurance Yojana
UMPP Ultra Mega Power Projects

Coverage History
230
1
210
190
170
150
130
110
90
70
Jun-22
Apr-23
Apr-23
Jun-23
Jun-23
Dec-22
Dec-22
May-23
May-23
Aug-22
Aug-22
Sep-22
Sep-22
Sep-22
Nov-22
Nov-22
Jul-22
Jul-22
Feb-23
Feb-23
Oct-22
Oct-22
Jan-23
Jan-23
Mar-23
Mar-23
Mar-23
Not Covered Covered
Date Rating Target Price Closing Price

1 26-Jun-2023 Buy INR 326 INR 200
Guide to Research Rating

BUY Absolute Return >+20%
ACCUMULATE Absolute Return +5% to +20%
REDUCE Absolute Return -5% to +5%
SELL Absolute Return < -5%

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Investment in securities market are subject to market risks. Read all the related documents carefully before investing.
46
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Global Markets Research

Disclosures for U.S. Investors
The research analyst did not receive compensation from Power Finance Corporation Limited.
Elara Capital Inc.’s affiliate did not manage an offering for Power Finance Corporation Limited.
Elara Capital Inc.’s affiliate did not receive compensation from Power Finance Corporation Limited in the last 12 months.
Elara Capital Inc.’s affiliate does not expect to receive compensation from Power Finance Corporation Limited in the next 3 months.
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Ravi Sodah Analyst Cement, Building Materials, Metals & Mining ravi.sodah@elaracapital.com +91 22 6164 8517
Ruchi Mukhija Analyst IT Services ruchi.mukhija@elaracapital.com +91 22 6164 8583
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Reena Shah Jr. Analyst Aviation, Chemicals, Oil & Gas reena.shah@elaracapital.com +91 22 6164 8591
Saurabh Mitra Sr. Associate Cement, Building Materials, Metals & Mining saurabh.mitra@elaracapital.com +91 22 6164 8546
Aditya Jaiswal Associate Strategy aditya.jaiswal@elaracapital.com +91 22 4204 8683
Amogh Deshpande Associate Aviation, Chemicals, Oil & Gas amogh.deshpande@elaracapital.com +91 22 4204 8664
Ash Shah Associate Infrastructure, Ports & Logistics ash.shah@elaracapital.com +91 22 6164 8500
Bhavi Shah Associate Cement, Building Materials, Metals & Mining bhavi.shah@elaracapital.com +91 22 6164 8521
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Heet Van Associate Healthcare, Pharmaceuticals heet.van@elaracapital.com +91 22 6164 8545
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Keval Shah Associate Strategy keval.shah@elaracapital.com +91 22 4204 8669
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Prachi Kele Associate Economics prachi.kele@elaracapital.com +91 22 4204 8694
Rohit Harlikar Associate Dairy, FMCG, Paints rohit.harlikar@elaracapital.com +91 22 6164 8562
Rounak Ray Associate Media & Entertainment, Alcobev, QSR, Internet rounak.ray@elaracapital.com +91 22 4204 8684
Seema Nayak Associate IT Services seema.nayak@elaracapital.com +91 22 4204 8687
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Tanvi Tambat Associate Real Estate tanvi.tambat@elaracapital.com +91 22 6164 8537
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Vidhi Puj Associate Dairy, FMCG, Paints vidhi.puj@elaracapital.com +91 22 4204 8692
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Power Finance Corporation - Elara Securities - 27 June 2023

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India | Diversified Financials 27 June 2023

Shweta Daptardar • shweta.daptardar@elaracapital.com • +91 22 6164 8559

Valuation trigger Investment summary

P/BV Stdev 1+ stdev 1- stdev

Source: Bloomberg, Company, Elara Securities Estimate

2 Elara Securities (India) Private Limited

Financials (YE March)

Net NPA 1.8 1.1 1.0 1.7 2.5 14

Elara Securities (India) Private Limited 3

Significant capex cycle underway Broad-based next leg of growth

Exhibit 1: POWF’s growth story …

▪ Consistent annual electricity demand of 7% growth

▪ Late payment surcharge rules (LPS)

▪ Tapping opportunities in eMobility spaces

Source: Company presentation, Elara Securities Research

4 Elara Securities (India) Private Limited

(4) of INR 737bn by FY25E, in turn, driving 15% annual

Peak power deficit Peak power deficit (%) 3,000

funding of INR 17tn would be needed over FY27-32E, of

suggests the company is well-positioned to capitalize on

The annual power demand has shown an upward trend,

Elara Securities (India) Private Limited 5

INR 14tn INR 17 tn 80

That said, the conventional segments share -- generation

Source: Company, Elara Securities Research

6 Elara Securities (India) Private Limited

Key portfolios highlights commendable progress in the generation and

Generation Transmission Distribution

Source: Company, Elara Securities Research

Elara Securities (India) Private Limited 7

GENCO to improve performance of coal-based power

40 ▪ Reducing cost of electricity generation and improving

8 Elara Securities (India) Private Limited

vs 9% growth in total loan assets. The company witnessed

doubling of renewable loans in H2FY20, and the growth

runway thereafter has been steady, with Q4FY23 closing

deals in the RE space by refinancing INR 61.12bn for JSW

350 35 400 100

Renewable YoY Growth (RHS)

Elara Securities (India) Private Limited 9

20 17.3 capacity by CY30

10 Elara Securities (India) Private Limited

Revamped Distribution Sector Scheme (RDSS) to

▪ Independent Transmission Projects (ITP)

▪ Late Payments Surcharge (LPS) scheme

0 0 IPDS (with R-APDRP subsumed in RDSS)

The program involves execution of 2,000 projects in India,

40 Distribution loans mix (timeline of completion of the Ayodhya Circle is up to

March 2023). Through the said scheme, a difference is

consumers across 3,600 towns where power distribution

20 infrastructure has been upgraded. IT enablement has

the enterprise resource planning (ERP) system has been

set up and upgraded in 32 DISCOM.

Elara Securities (India) Private Limited 11

12 Elara Securities (India) Private Limited

Disbursements trends: During FY11-22, the company 400 (40)

disbursed an average of 67% of loans sanctioned, thereby 200 (60)

stood as high as 99% on the back of improved

Elara Securities (India) Private Limited 13

14 Elara Securities (India) Private Limited

POWF+REC: formidable power Higher generation loans drive REC loans

Elara Securities (India) Private Limited 15