Sector Update | 19 January 2025
Sector Update | Technology
NBFC: Power Finance
Total installed capacity to reach
900GW by FY32
India total installed capacity (GW)
900
610
442
Structural opportunity in power finance intact
Minor weakness in loan growth in the near term
Dec'24
Mar'27
Mar'32
Total energy demand grew ~5%
YoY as of Nov’24
Total generation including RE
(BU)
Growth YoY (%)
8 8.9
5.4 5.2
0.9
-0.5
6.8
5.0
Total installed capacity grew
~8% YoY as of Dec’24
Total Installed capacity (GW)
YoY Growth (%)
7.9
5.3
3.5 3.9
3.3
6.2
4.5 4.1
Power financiers, PFC and REC, have a structural opportunity to finance India’s
ambitious energy transition goals, which necessitate a projected capex of
~INR42t over the next decade to expand generation infrastructure.
Renewable energy (RE) will dominate the growth trajectory, with installed
capacity expected to reach 596GW by FY32, comprising ~66% of total capacity.
Transmission infrastructure, essential to support RE integration, will require
investments of INR9.2t by FY32.
PFC and REC collectively command ~44% market share in infrastructure
(including power) financing and have filled the gap left by traditional banks,
which have reduced their exposure to the power sector due to concerns over
asset quality. Having said that, RE financing still remains highly competitive, with
PFC/REC having to compete aggressively on pricing with banks.
Government policies, such as the revamped distribution sector scheme (RDSS)
and UDAY, are aimed at strengthening DISCOMs by improving operational
efficiency and financial sustainability. The power sector will benefit from
macroeconomic tailwinds, including rising energy demand (India’s power
demand to grow 8-9% over FY24-27E) and almost doubling of installed capacity
to ~900GW over the next decade. The inclusion of infrastructure and logistics
financing in PFC and REC's mandates has opened up avenues for diversification,
reducing dependence solely on the power sector.
Asset quality metrics of power financiers are improving, with GNPA ratios of
PFC/REC declining to 2.7%/2.5% as of Sep’24, which reflects a lower risk profile.
In the current power demand uptrend, many distressed power plants have been
acquired by larger players, resulting in the resolution of multiple stressed
projects. This trend is expected to continue, leading to further recoveries for
lenders like PFC and REC. We do not see risks of incremental additions to the
stress pool over the next 12-18 months, and this should keep credit costs benign
at <5bp in FY26E as well.
Our view on loan growth and asset quality in the near term
Loan growth
REC delivered loan growth of ~15% YoY as of Sep’24. With this, generation grew
~19% YoY, transmission remained flat YoY, and distribution rose ~5% YoY. Over
the last two years, distribution in the loan mix has remained largely flat at ~40%,
RE loans have clocked a ~37% CAGR, and RE in the loan mix now forms ~9%.
PFC delivered loan growth of ~10% YoY as of Sep’24. With this, generation grew
~2% YoY, transmission grew 14% YoY, and distribution rose ~12% YoY. Over the
last two years, distribution in the loan mix has improved from 35% to 41%, RE
loans have seen a CAGR of ~30%, and RE in the loan mix now forms ~13%.
In the near term, we expect some weakness in sanctions because of a slowdown
in the overall economic activity, resulting in slower investments in power and
infrastructure projects. Moreover, in distribution, a large part of loan growth
Abhijit Tibrewal - Research Analyst
(Abhijit.Tibrewal@MotilalOswal.com)
Research Analyst: Nitin Aggarwal
(Nitin.Aggarwal@MotilalOswal.com) |
Raghav Khemani
(Raghav.Khemani@MotilalOswal.com)
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
 Motilal Oswal Financial Services
Sector Update | Financial - Microfinance
In the near term, we expect
some weakness in sanctions
because of a slowdown in
the overall economic
activity, resulting in slower
investments in power and
infrastructure projects.
seen over the last two years came from schemes like the late payment surge
(LPS) and the liquidity infusion scheme (LIS). Currently, PFC and REC are
disbursing to distribution companies, predominantly under the two schemes,
RBPF and RDSS. RBPF is a revolving facility and acts more like working capital
loans for the distribution companies. RDSS is linked to improvements exhibited
by state-owned distribution companies in their AT&C losses and the ACS-ARR
gap.
In FY25, we expect PFC and REC to report loan book growth of ~13% and ~17%,
respectively. We estimate Loan CAGR of ~15% and ~18% for PFC and REC over
FY25E-27E.
Our discussions with
experts in the power
ecosystem suggests that RE
continues to do well and
there is no structural
deterioration in the RE
segment.
Our estimates suggest that
the resolution of KSK
Mahanadi could translate
into write-backs of
~INR8.2b for PFC and
~INR5.2b for REC.
Asset Quality
On 9th Jan’25, the Indian Renewable Energy Development Agency (IREDA) in
3QFY25 results reported a ~30bp QoQ deterioration in its gross NPA, which
suggested that one RE exposure of ~INR4b slipped during the quarter. This
naturally brought up the question of whether this had any implications for
PFC/REC’s RE loan book and whether we are already beginning to see new NPA
formation in RE projects.
Our discussions with few experts in the power ecosystem suggested that the RE
space still continues to do well and there is nothing that suggests any structural
deterioration brewing in the RE segment. They did, however, highlight that
there could always be project-specific nuances in the RE power projects, which
could lead to one-off slippages in the segment.
Asset quality will continue to see improvement, aided by resolutions of stressed
exposures. Both PFC and REC have shared a list of stressed projects with total
exposures of ~INR50b and ~INR53.5b, respectively, which are in advanced
stages in resolution. Lanco Amarkantak Power received NCLT approval for
acquisition by Adani Power in Aug’24 and was resolved in Sep’24.
Recently, JSW Energy announced that its resolution plan submitted for KSK
Mahanadi has received a letter of intent (LoI) from the resolution professional.
This will be followed by the approval of the CoC, NCLT and CCI. While NCLT
approval will take its own course, we believe that KSK Mahanadi could be
resolved in the next 3-4 months. Both PFC and REC will benefit from this as they
have ~INR34b and ~INR27b outstanding to KSK Mahanadi. PFC and REC have
made provisions of ~55% and ~50%, respectively, on this account.
Our
estimates suggest that the resolution of KSK Mahanadi could translate into
write-backs of ~INR8.2b for PFC and ~INR5.2b for REC.
Refer Exhibits 16, 17 and
18 for the detailed workings.
Structural opportunity intact; still in the early part of the RE uptrend
PFC and REC are pivotal players in India's energy transition journey, together
commanding ~44% market share in infrastructure (including power) financing.
With a combined loan disbursement of ~INR9t over FY20-24, both these
government-backed NBFCs are driving growth in RE and infrastructure projects.
PFC, with the largest RE loan book of INR643b (~30% CAGR in the last two
years), and REC, with a robust portfolio of INR5.7t, are key enablers of India’s
ambitious INR42t power capex requirements.
19 January 2025
2
 Motilal Oswal Financial Services
Sector Update | Financial - Microfinance
PFC and REC will be
beneficiaries of the revival
in power sector capex. We
do not see risks of
incremental additions to
the stress pool of PFC/REC
over the next 12-18
months.
Both PFC and REC have strong financial health, with GNPA ratios below 3%, high
provisioning coverage, and impressive RoE of ~18% and ~21%, respectively.
Backed by government initiatives like RDSS and expansion into logistics and
infrastructure, PFC and REC are strategically positioned to capitalize on India’s
growing energy demand while maintaining sustainable growth and profitability.
PFC and REC will be beneficiaries of the revival in power sector capex. We do
not see risks of incremental additions to the stress pool over the next 12-18
months, and this should keep credit costs benign at <5bp over FY26E as well. For
RoA 2.9%/2.6%, RoE of ~18%/21%, and dividend yields of ~4.3%/4.9% in FY27E,
we believe current valuations of 0.9x and 1.2x FY27E P/ABV for PFC (standalone)
and REC, respectively, are attractive.
Exhibit 1:
Valuation matrix for NBFCs in our coverage
Val
summary
MSME
Five-Star
Housing Finance
LIC HF
PNB HF
Aavas
HomeFirst
CanFin
Repco
Vehicle Finance
Cholamandalam
MMFS
Shriram Finance
Indostar
Gold Finance
Muthoot
Manappuram
Diversified
BAF
Poonawalla
ABCL
LTFH
PIEL
MAS Financial
IIFL Finance
Microfinance
CreditAccess
Fusion Micro
Spandana Sphoorty
Power Financiers
PFC
REC
Rating
Buy
Buy
Buy
Neutral
Buy
Neutral
Neutral
Buy
Buy
Buy
Buy
Neutral
Neutral
Neutral
Buy
Buy
Buy
Neutral
Buy
Buy
Buy
Neutral
Buy
Buy
Buy
EPS (INR)
BV (INR)
RoA (%)
RoE (%)
P/E (x)
P/BV (x)
CMP TP
(INR) (INR) FY25E FY26E FY25E FY26E FY25E FY26E FY25E FY26E FY25E FY26E FY25E FY26E
665
563
905
1,637
1,032
692
409
197
311
233
129
93
92
26
970
760
1,160
1,800
1,280
800
480
46
35
28
10
24
16
17
17
25
33
7
-4
6
7
24
41
26
6
40
28
19
-12
9
36
31
41.5
96.1
89.4
89.6
52.4
71.2
69.9
68.4
25.1
53.2
16.4
47.9
103.6
108.5
109.6
63.3
82.6
77.9
90.0
31.6
64.1
24.8
255
721
726
639
325
450
596
366
187
357
260
826
182
301
803
820
749
384
526
670
452
210
419
285
963
213
7.6
1.6
2.5
3.3
3.4
2.2
2.8
2.6
2.1
3.3
1.5
5.3
4.3
4.0
2.9
0.0
2.5
1.3
3.1
3.2
4.9
2.8
3.1
3.0
2.6
7.0
1.6
2.6
3.4
3.3
2.2
2.8
2.8
2.4
3.3
1.9
5.2
4.6
4.1
3.5
0.0
2.7
1.5
3.2
3.3
5.1
4.0
4.3
2.9
2.6
17.7
14.1
13.0
15.1
17.4
17.0
12.4
21.3
14.1
16.0
6.7
19.9
16.9
19.8
12.5
13.6
12.7
4.7
14.5
15.1
19.7
13.2
10.9
19.0
20.9
17.2
13.6
14.0
15.8
17.8
16.9
12.3
22.0
15.9
16.5
9.1
19.1
18.1
21.2
17.4
14.5
15.3
5.9
15.6
16.3
20.3
18.8
16.1
18.8
20.8
16.0
5.9
10.1
18.3
19.7
9.7
5.8
18.4
10.7
9.9
17.1
14.1
6.7
20.9
22.1
10.5
10.5
18.0
11.4
8.6
9.0
6.1
7.3
7.8
7.0
13.9
5.4
8.3
14.9
16.3
8.4
5.2
14.0
8.5
8.2
11.3
12.6
5.4
16.3
13.9
8.7
7.7
13.7
9.3
6.8
7.2
3.6
4.3
6.8
6.0
1,258 1,077 1,470
269 333
335
526 1,027 700
279
37
300
2,150
194
875
155
2,060
205
152.4 171.0
28.8 35.9
7,181 4,495 7,660
314 241
390
177 463
250
143 355
180
1,031 230 1,090
243
45
340
399 169
510
910
187
354
144
18
26
1,085
165
385
590
630
342.9 440.0 1,878 2,263
14.2 22.6
120
140
16.8 20.3
131
150
13.6 18.5
113
128
57.4 75.3 1,253 1,314
21.4 26.3
157
181
46.7 58.4
331
384
101.0 127.3
30.7 51.7
48.4 81.5
55.9
69.3
63.3
80.6
562
248
466
314
358
690
300
548
358
418
433 1,436
483 1,277
Source: MOFSL, Company
19 January 2025
3
 Motilal Oswal Financial Services
Sector Update | Financial - Microfinance
Story in charts: Industry overview
Exhibit 2:
Total installed capacity to reach 900GW by FY32
India total installed capacity (GW)
900
610
442
5.4
5.2
0.9
-0.5
Exhibit 3:
Total energy demand grew ~5% YoY as of Nov’24
Total generation including RE (BU)
8
8.9
6.8
5.0
1308
Dec'24
Mar'27
Mar'32
Source: CEA, MOFSL
FY18
1376
FY19
1389
FY20
1382
FY21
1492
FY22
1624
FY23
1734
1231
FY24 Nov'24
Source: CEA, MOFSL
Exhibit 4:
Total installed capacity grew ~8% YoY as of Dec’24
Total Installed capacity (GW)
YoY Growth (%)
7.9
5.3
3.5
3.9
3.3
6.2
4.5
4.1
344
FY18
356
FY19
370
FY20
382
FY21
399
FY22
416
FY23
442
FY24
462
Dec'24
Source: CEA, MOFSL
Exhibit 5:
India’s RE installed capacity in 2027 and 2032 (GW)
Dec'24
Mar'27
Mar'32
365
235 260
220
25 25 25
Coal &
Lignite
Gas
47 60
89
186
48
73
122
109
5 5
Solar
5
8 13 20
Nuclear
Large Hydro
(incl. PSP)
Wind
Small Hydro
Power
Source: CEA, MOFSL
Exhibit 6:
India’s RE installed capacity in 2027 and 2032 (GW)
Estimated installed capacity by FY26-27 (GW)
Estimated installed capacity by FY31-32 (GW)
364.6
596.4
336.6
121.9
13
15.5
5.2
5.5
Total
Source: CEA, MOFSL
185.6
59.9
88.9
Solar
72.9
Large Hydro
(incl. PSP)
Wind
Biomass
Small Hydro
19 January 2025
4
 Motilal Oswal Financial Services
Sector Update | Financial - Microfinance
Story in charts: PFC
Exhibit 7:
Generation loan book grew ~2% YoY as of Sep’24
PFC Generation loan book (INR b)
Growth YoY (%)
2.4
1.0
0.0
0.9 0.3
(0.9)
(86.9)
0.6
3.9
Exhibit 8:
Transmission AUM grew ~14% YoY as of Sep’24
PFC Transmission loan book (INR b)
2.0
Growth YoY (%)
12.9
13.9
292
2,271
FY20
2,294
FY21
2,314
FY22
2,321
FY23
2,301
FY24
2,350
Sep'24
FY20
293
FY21
305
FY22
311
FY23
351
FY24
369
Sep'24
Source: Company, MOFSL
Source: Company, MOFSL
Exhibit 9:
Distribution loan book grew ~12% YoY as of Sep’24
PFC Distribution loan book (INR b)
48.0
14.0
(66.0)
759
1,123
FY20
FY21
1,280
FY22
1,587
FY23
1,950
FY24
2,003
Sep'24
Growth YoY (%)
Exhibit 10:
RE loan book grew ~23% YoY as of Sep’24
PFC Renewable loan book (INR b)
140.4
Growth YoY (%)
24.0
22.9
11.7
1.3
370
FY20
375
FY21
(1.9)
368
FY22
482
FY23
602
FY24
31.1
24.9
23.3
643
Sep'24
Source: Company, MOFSL
Source: Company, MOFSL
Exhibit 11:
Share of RE in the loan mix has increased to ~13% from 10% in FY20 (%)
Conventional Generation
1
30
8
10
1
34
8
10
47
FY22
Generation - Renewable
1
Transmission
3
41
7
13
36
FY24
Distribution
2
41
7
13
35
Others
38
7
11
42
FY23
51
FY21
Sep'24
Source: Company, MOFSL
19 January 2025
5
 Motilal Oswal Financial Services
Sector Update | Financial - Microfinance
Story in charts: REC
Exhibit 12:
Generation loan book grew ~19% YoY as of Sep’24
REC Generation loan book (INR b)
15.4
10.4
15.4
18.7
Exhibit 13:
Transmission loans were flat YoY as of Sep’24
REC Transmission loan book (INR b)
Growth YoY (%)
14.5
2.7
5.9
(0.6)
(25.5)
0.4
(4.2)
1,556
FY20
1,718
FY21
1,646
FY22
(3.0)
1,596
FY23
1,842
FY24
1,988
Sep'24
596
FY20
612
FY21
649
FY22
483
480
FY23
FY24
486
Sep'24
Source: Company, MOFSL
Source: Company, MOFSL
Exhibit 14:
Distribution loan book grew ~5% YoY as of Sep’24
REC Distribution loan book (INR b)
35.5
Growth YoY (%)
Exhibit 15:
RE AUM grew ~60% YoY as of Sep’24
REC Renewable loan book (INR b)
Growth YoY (%)
128.7
60.3
4.7
15.5
6.9
2,200
24.7
2.7
161
Sep'24
165
(28.2)
118
271
390
478
43.8
20.8
15.4
1,063
FY20
1,440
FY21
1,539
FY22
1,858
FY23
2,147
FY24
FY20
FY21
FY22
FY23
FY24
Sep'24
Source: Company, MOFSL
Source: Company, MOFSL
Exhibit 16:
Share of renewable in the loan mix has increased to ~9% from ~5% in FY20
Generation
Renewable Energy
Transmission
1
40
43
18
5
43
16
4
41
17
3
40
42
9
8
29
FY24
40
9
9
28
Sep'24
Distribution
1
Infra & logistics Others
2
2
11
12
9
33
38
11
6
30
FY23
FY20
FY21
FY22
Source: Company, MOFSL
19 January 2025
6
 Motilal Oswal Financial Services
Sector Update | Financial - Microfinance
Exhibit 17:
Overall recovery expected from KSK Mahanadi
KSK Mahanadi
Total owed
Distributed to lenders
Balance Claim
JSW Bid for KSK
% Recovery from the Balance Claim
INR b
322.4
62.4
260
160
61.5
Source: Company, MOFSL
Exhibit 18:
PFC: Write-backs expected on resolution of KSK Mahanadi
PFC
Total outstanding to KSK
Received from surplus cash distribution (MOFSLe) [A]
Balance Claim
Expected Recovery (post resolution) from Balance Claim outstanding [B]
Provision Cover
Net Value of the exposure to KSK [C]
Total Recoveries [D = A + B]
Write-backs [E = D-C]
INR b
34.3
6.6
27.7
17.0
55%
15.4
23.6
8.2
Source: Company, MOFSL
Exhibit 19:
REC: Write-backs expected on resolution of KSK Mahanadi
REC
Total outstanding to KSK
Received from surplus cash distribution (MOFSLe) [A]
Balance Claim
Expected Recovery (post resolution) from Balance Claim outstanding [B]
Provision Cover
Net Value of the exposure to KSK [C]
Total Recoveries (D = A + B)
Write-backs [E= D-C]
INR b
27.3
5.3
22.0
13.5
50%
13.7
18.8
5.2
Source: Company, MOFSL
19 January 2025
7
 Motilal Oswal Financial Services
Sector Update | Financial
January 2025
17
- Microfinance
Sector: Financials - NBFC
Power Finance Corporation
BSE SENSEX
76,619
S&P CNX
23,203
CMP: INR433
TP: INR560(+29% )
Buy
Resilient, profitable, and ready for the renewable boom
Stressed asset resolutions will keep the write-backs coming and credit costs benign
Stock info
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
POWF IN
3300
1430.4 / 16.5
580 / 352
-8/-15/3
6938
44.0
PFC is India’s largest government-owned power financier and a leader in RE
financing. PFC’s RE loan book stands at INR643b, recording a ~30% CAGR over the
last two years. Backed by robust financials (projected RoE of 19%) and healthy
asset quality (GNPA of 2.7%), PFC is well-positioned to capitalize on India’s INR42t
energy capex pipeline. As a key enabler of India’s energy transition, PFC supports
critical government initiatives like RDSS, enhancing the power sector's efficiency
and sustainability.
Strategic position in India’s power growth story
PFC is at the forefront of India’s evolving power sector, poised to benefit from the
country’s ambitious installed power capacity expansion plans. With a forecast of
over ~450GW in new power generation capacity by 2032, including significant
investments in RE, PFC is well-positioned as a key lender to power finance. Its focus
on government-backed projects and secured PPAs (while avoiding exposure to
segments where it does not have core expertise) will ensure stable loan growth.
The increasing demand for electricity, driven by industrial growth, electrification,
and emerging use cases like electric vehicles (EVs), underscores PFC's pivotal role in
enabling this transformation.
Financials snapshot (INR b)
Y/E March
FY25E FY26E FY27E
NII
181
202
229
PPP
198
226
255
PAT
164
187
205
EPS (INR)
49.7
56.6
62.0
EPS Gr. (%)
14
14
10
BV/Sh. (INR)
275
314
358
ABV/Sh. (INR)
231
270
314
RoAA (%)
3.1
3.1
2.9
RoAE (%)
19.3
19.2
18.4
Div Payout (%)
30.0
30.0
30.0
Valuations
P/E (x)
8.7
7.6
7.0
P/BV (x)
1.6
1.4
1.2
Core P/E (x)
5.6
4.9
4.5
Core P/BV (x)
1.2
1.0
0.9
Div. Yld (%)
3.4
3.9
4.3
Shareholding pattern (%)
As On
Sep-24 Jun-24 Sep-23
Promoter
56.0
56.0
56.0
DII
17.5
17.1
17.9
FII
17.7
17.9
16.9
Others
8.8
9.0
9.3
FII Includes depository receipts
Stock performance (one-year)
Power Fin.Corpn.
Nifty - Rebased
Resilient business model given India’s energy transition goals
PFC’s resilience is supported by its alignment with India’s energy policy goals and
its strategic role in funding state-led projects. While potential risks, such as
exposure to merchant RE projects or regulatory changes, remain, PFC is insulated
by its sovereign-backed status and limited competition in power financing. The
gradual improvement in DISCOMs' financial health, supported by government
initiatives like RDSS, further enhances repayment stability. As India continues to
navigate its energy transition, PFC’s strong market position and focus on
sustainable financing make it a reliable play in power finance.
Lower risks to asset quality
590
530
470
410
350
PFC now has significantly reduced NPA risks compared to previous cycles, with
~81% of its lending directed toward government entities and ~13% to RE
projects, both of which feature secure cash flows and lower execution risks. RE
projects benefit from shorter execution timelines, back-ended capital
requirements, and strong receivables mechanisms through entities like Solar
Energy Corporation of India (SECI). Furthermore, the resolution of distressed
thermal power assets has strengthened PFC’s portfolio, with three major assets
already resolved over the last 18 months and more under process, highlighting
its effective risk management. PFC has no NPAs in state-backed projects. All
the 18 projects that are classified as NPAs are from the private sector.
Resolutions in 12 NPA projects are being pursued under the NCLT, and PFC is
trying to get a resolution in the remaining six NPA projects outside the NCLT.
19 January 2025
8
 Motilal Oswal Financial Services
Sector Update | Financial - Microfinance
Among the stressed projects, two accounts with total outstanding of ~INR45b
are at advanced stages of resolution - TRN Energy with outstanding exposure of
~INR11.4b and KSK Mahanadi with outstanding exposure of ~INR34.3b. Our
estimates suggest that the resolution of KSK Mahanadi (which could happen in
the next 3-6 months) will translate into write-backs of ~INR8.2b for PFC.
Valuation and view
PFC offers a compelling investment case as we estimate robust financial
performance over FY24-27E, with loan CAGR of ~14% and PAT CAGR of ~13%.
There are upside risks to our estimates based on the quant of write-backs from
the resolution of stressed assets. Trading at a FY27E P/BV (standalone) of just
0.9x, PFC is significantly cheaper than its power sector peers, despite having an
expected ROE of ~18-19% over FY26-27E. The company’s strategic focus on
high-yielding loans to DISCOMs and other state-backed initiatives ensures stable
profitability, even as it continues to scale up its RE financing.
We maintain BUY on PFC with our SoTP (Sep’26E)-based TP of INR560 (based on
1.2x target multiple for the PFC standalone business and INR211/share for PFC’s
stake in REC after holdco discount of 20%).
The key downside risks to our investment thesis include: 1) slowdown in loan
growth in the distribution segment; 2) the RBI’s proposed stricter provisioning
norms for project financing that would increase the provisioning requirement to
~5.0% from ~0.4%, which would be gradually brought down, subject to
conditions; and 3) asset quality risks from deterioration in the health of state
power distribution companies.
Target multiple
1.2
1.6
Value (INR B)
1,157
873
175
698
1,856
INR per share
350
265
211
560
% To Total
62
Rationale
1.2x Sep'26 PBV
1.6x Sep'26 PBV
PFC: SOTP - Sep’26E
PFC Standalone
REC Stake (Pre-holdCo)
Hold Co Discount (20%)
REC Stake (Post Hold-CO)
Target Value
Stake
100
53
38
100
19 January 2025
9
 Motilal Oswal Financial Services
Sector Update | Financial - Microfinance
PFC - Story in charts
Exhibit 20:
Expect ~14% AUM CAGR over FY24-27E
Loans (INR b)
YoY Gr. (%)
Exhibit 21:
Disbursements CAGR of ~19% over FY24-27E
Disbursements (INR b)
15%
67.4
48.9
YoY Gr. (%)
13%
10%
7%
1%
3,731
3,147 3,449 3,708
13%
14%
15%
13%
29.9
5.1
0.5
-42.0
512
4,225 4,815 5,440 6,256 7,200
677
680
883
858
32.0
13.0
12.0
1,277 1,685 1,904 2,133
FY19 FY20 FY21 FY22 FY23 FY24 FY25E FY26E FY27E
Source: MOFSL, Company
FY19 FY20 FY21 FY22 FY23 FY24 FY25E FY26E FY27E
Source: MOFSL, Company
Exhibit 22:
Expect spreads of ~2.7%/2.6% in FY26E/FY27E
Avg. Yields %
Interest Spread %
3.3
3.2
3.1
Avg Cost of funds %
Exhibit 23:
NIMs to stabilize at ~3.6/3.5 in FY26E/FY27E
Net Interest Margin %
3.8
2.8
2.8
2.8
2.7
2.6
2.3
3.6
3.2
3.6
3.5
3.6
3.5
7.2
10.0
FY20
7.2
10.4
FY21
6.7
6.9
10.2
9.8
9.9
FY22
FY23
7.1
9.9
7.1
9.6
6.9
9.4
6.8
FY24
FY25E FY26E FY27E
Source: MOFSL, Company
FY20
FY21
FY22
FY23
FY24 FY25E FY26E FY27E
Source: MOFSL, Company
Exhibit 24:
Loan mix for PFC (%)
Conventional Generation
Transmission
Others
1
22
8
11
58
FY20
1
30
8
10
51
FY21
1
34
8
10
47
FY22
Exhibit 25:
Asset quality continues to improve
Generation - Renewable
Distribution
1
38
7
11
42
FY23
3
41
7
13
36
FY24
2
41
7
13
35
Sep'24
8.1
FY20
GNPA ratio
63.4
47.1
3.8
68.6
72.7
NNPA ratio
74.4
PCR
71.0
70.0
73.0
2.1
5.7
FY21
5.6
1.8
3.9
1.1
3.3
FY23
0.9
2.8
0.7
2.3
0.7
1.9
0.6
FY22
FY24
FY25E FY26E FY27E
Source: MOFSL, Company
Source: MOFSL, Company
Exhibit 26:
Expect ~13% PAT CAGR over FY24-27E
56.7
PAT (INR b)
Growth YoY (%)
Exhibit 27:
Expect healthy ~18-19% ROE over FY26-27E
ROA (%)
19.5
ROE (%)
19.3
19.2
18.4
17.9
18.2
18.7
23.5
15.4
112.9
FY23
139.5
FY24
14.3
159.4
FY25E
13.9
181.5
FY26E
9.4
198.6
FY27E
17.3
82.4
FY21
97.8
FY22
2.2
FY21
2.5
FY22
2.8
FY23
3.0
FY24
3.1
FY25E
3.1
FY26E
2.9
FY27E
Source: MOFSL, Company
Source: MOFSL, Company
19 January 2025
10
 Motilal Oswal Financial Services
Sector Update | Financial - Microfinance
Exhibit 28:
DuPont analysis
Y/E March
Interest Income
Interest Expended
Net Interest Income
Other Operating Income
Other Income
Net Income
Operating Expenses
Operating Income
Provisions/write offs
PBT
Tax
Reported PAT
Leverage
RoE
FY20
9.0
6.2
2.9
0.6
-0.7
2.7
0.1
2.6
0.3
2.3
0.7
1.6
8.0
12.8
FY21
9.6
6.2
3.4
0.3
0.0
3.8
0.1
3.6
0.9
2.7
0.5
2.2
7.7
17.3
FY22
9.3
5.8
3.6
0.5
-0.2
3.8
0.1
3.7
0.6
3.1
0.6
2.5
7.0
17.9
FY23
9.0
5.5
3.4
0.5
-0.5
3.5
0.1
3.3
-0.1
3.4
0.6
2.8
6.6
18.2
FY24
9.2
5.9
3.3
0.5
0.0
3.8
0.1
3.7
0.0
3.7
0.7
3.0
6.4
19.5
FY25E
9.2
5.8
3.4
0.5
-0.1
3.8
0.1
3.7
-0.1
3.8
0.7
3.1
6.3
19.3
FY26E
FY27E
9.0
8.9
5.7
5.6
3.3
3.3
0.5
0.5
0.0
0.0
3.9
3.8
0.1
0.1
3.7
3.7
-0.1
0.1
3.8
3.6
0.7
0.7
3.1
2.9
6.2
6.3
19.2
18.4
Source: MOFSL, Company
Exhibit 29:
Our EPS estimates are largely unchanged
INR B
NII
Other Income
Net Income
Operating Expenses
Operating Profits
Provisions
PBT
Tax
PAT
Loans
RoAA (%)
FY25
180.7
24.4
205.1
7.4
197.7
-4.1
201.9
37.7
164.1
5,440
3.1
Old Est.
FY26
204.1
31.8
235.9
8.0
227.9
1.6
226.3
41.9
184.4
6,387
3.0
FY27
235.4
34.3
269.7
8.8
260.9
4.6
256.3
47.4
208.9
7,415
2.9
FY25
180.7
24.4
205.1
7.4
197.7
(4.1)
201.9
37.7
164.1
5,440
3.1
New Est.
FY26
201.8
31.8
233.5
8.0
225.5
(3.7)
229.2
42.4
186.8
6,256
3.1
FY27
229.3
34.3
263.6
8.8
254.8
3.8
251.0
46.4
204.6
7,200
2.9
FY25
0.0
0.0
0.0
0.0
0.0
-
0.0
0.0
0.0
% change
FY26
-1.2
0.0
-1.0
0.0
-1.0
-
1.3
1.3
1.3
FY27
-2.6
0.0
-2.3
0.0
-2.3
-18
-2.1
-2.1
-2.1
Source: MOFSL, Company
Exhibit 30:
Trend in P/B ratio (one-year forward)
2.4
1.8
1.2
0.6
0.0
0.7
0.3
0.3
1.0
P/B (x)
Min (x)
Avg (x)
+1SD
1.9
Max (x)
-1SD
Exhibit 31:
Trend in P/E ratio (one-year forward)
12.0
9.0
P/E (x)
Min (x)
Avg (x)
+1SD
Max (x)
-1SD
10.7
6.0
1.4
6.0
3.0
0.0
3.9
1.8
1.8
7.8
Source: MOFSL, Company
Source: MOFSL, Company
19 January 2025
11
 Motilal Oswal Financial Services
Sector Update | Financial - Microfinance
Financials and valuations
Income Statement
Y/E March
Interest on loans
Interest exp & other charges
Net Interest Income
Change (%)
Other operating income
Exchg Gain/(loss) on Forex loans
Other Income
Net Income
Change (%)
Employee Cost
Administrative Exp
Depreciation
Operating Income
Change (%)
Total Provisions
% to operating income
PBT
Prior period Adjustments
PBT (post prior period adj)
Tax (Incl Deferred tax)
Tax Rate (%)
PAT
Change (%)
Extraordinary item
Reported PAT
Adjusted PAT (Excluding REC Dividend)
Change (%)
Proposed Dividend (Incl Tax)
FY19
284
190
94
7.8
4
-5
0
93
-9.5
2
2
0
89
-10.2
-9
-9.7
98
0
98
29
29.2
70
4.2
0
70
73
12.4
0
FY20
320
219
101
6.9
21
-26
0
96
2.6
2
2
0
92
2.7
10
10.8
82
0
82
25
31.0
57
-18.7
0
57
53
-28.2
25
FY21
361
232
130
28.3
11
2
0
142
48.4
2
3
0
137
49.2
35
25.5
102
0
102
18
17.3
84
49.3
0
84
82
56.7
26
FY22
367
227
140
8.3
19
-9
0
150
5.7
2
3
0
144
5.4
22
15.4
122
0
122
22
18.0
100
18.7
0
100
98
18.7
32
FY23
376
233
144
2.4
21
-20
0
145
-3.6
2
4
0
139
-4.0
-3
-2.1
142
0
142
26
18.1
116
15.8
0
116
113
15.4
35
FY24
436
280
156
8.8
23
2
0
181
25.2
2
4
0
175
25.8
-2
-1.0
176
0
176.3
33
18.5
144
23.8
0
144
139
23.5
45
FY25E
492
311
181
15.6
28
-4
0
205
13.2
3
5
0
198
13.3
-4
-2.1
202
0
202
38
18.7
164
14.2
0
164
159
14.3
49
FY26E
544
342
202
11.7
30
1
0
234
13.9
3
5
0
226
14.1
-4
-1.6
229
0
229
42
18.5
187
13.8
0
187
182
13.9
56
(INR b)
FY27E
618
388
229
13.6
33
1
0
264
12.9
3
6
0
255
13.0
4
1.5
251
0
251
46
18.5
205
9.5
0
205
199
9.4
61
(INR b)
FY27E
33
1,148
1,181
0
1,181
0
6,113
15.1
7,294
245
5.0
7,042
15.4
0
1
18
7,306
Balance Sheet
Y/E March
Capital
Reserves & Surplus
Net Worth
Deferred Tax Liability
Networth (incl DTL)
Interest subsidy from GoI
Borrowings
Change (%)
Total Liabilities
Investments
Change (%)
Loans
Change (%)
Forex monetary reserves
Net Fixed Assets
Net Current Assets
Total Assets
E: MOFSL Estimates
FY19
26
406
433
0
433
0
2,952
24.7
3,385
166
558.2
3,032
14.0
0
0
142
3,340
FY20
26
425
452
0
452
0
3,103
5.1
3,554
165
-0.7
3,341
10.2
0
1
2
3,509
FY21
26
498
524
0
524
0
3,330
7.3
3,854
160
-3.0
3,601
7.8
0
1
48
3,809
FY22
26
567
594
0
594
0
3,274
-1.7
3,868
161
0.7
3,609
0.2
0
1
40
3,811
FY23
26
656
682
0
682
0
3,704
13.1
4,386
173
7.6
4,108
13.8
0
1
16
4,298
FY24
33
759
792
0
792
0
4,164
12.4
4,956
202
16.9
4,699
14.4
0
1
2
4,905
FY25E
33
874
907
0
907
0
4,597
10.4
5,504
222
10.0
5,284
12.4
0
1
-4
5,503
FY26E
33
1,005
1,038
0
1,038
0
5,312
15.5
6,349
234
5.0
6,101
15.5
0
1
20
6,355
19 January 2025
12
 Motilal Oswal Financial Services
Sector Update | Financial - Microfinance
Financials and valuations
Loans and Disbursements
Gross Loans (INR b)
YoY Growth (%)
Disbursements (INR b)
YoY Growth (%)
Ratios
Y/E March
Spreads Analysis (%)
Avg. Yields
Avg Cost of funds
Interest Spread
NIM
Profitability Ratios (%)
RoE
RoA
Efficiency Ratios (%)
Int. Expended/Int.Earned
Other operating Inc./Net Inc.
Other Income/Net Income
Op. Exps./Net Income
Empl. Cost/Op. Exps.
Asset-Liability Profile (%)
Loans/Borrowings Ratio (x)
Assets/Networth (x)
Debt/Equity (x)
Asset Quality (%)
Gross Stage 3
Net Stage 3
PCR
Credit costs
Valuations
Book Value (INR)
BV Growth (%)
Price-BV (x)
Adjusted Book Value (INR)
ABV Growth (%)
Price-ABV (x)
EPS (INR)
EPS Growth (%)
Price-Earnings (x)
Core EPS (INR)
Adj Core EPS Growth (%)
Adj. Price-Core EPS (x)
DPS
Dividend Yield (%)
E: MOFSL Estimates
FY19
3,147
13
677
5
FY20
3,449
10
680
0
FY21
3,708
7
883
30
FY22
3,731
1
512
-42
FY23
4,225
13
858
67
FY24
4,815
14
1,277
49
FY25E
5,440
13
1,685
32
FY26E
6,256
15
1,904
13
FY27E
7,200
15
2,133
12
FY19
10.0
7.1
2.9
3.1
17.3
2.2
66.8
4.3
0.2
4.3
43.5
103
7.7
6.8
9.4
4.6
51.5
-0.31
FY19
164
17.1
2.6
150
24.8
1.8
26.3
4.2
16.4
27.7
12.4
9.7
0.0
0.0
FY20
10.0
7.2
2.8
2.3
12.8
1.6
68.4
22.0
0.1
4.2
48.5
108
7.8
6.9
8.1
3.8
47.1
0.31
FY20
171
4.3
2.5
116
-22.8
2.3
21.4
-18.7
20.2
19.9
-28.2
13.5
9.5
2.2
FY21
10.4
7.2
3.2
3.8
17.3
2.2
64.2
7.6
0.2
3.6
37.9
108
7.3
6.4
5.7
2.1
63.4
1.01
FY21
198
16.0
2.2
144
23.6
1.9
32.0
49.3
13.5
31.2
56.7
8.6
10.0
2.3
FY22
10.2
6.9
3.3
3.6
17.9
2.5
61.8
12.3
0.3
3.8
37.1
110
6.4
5.5
5.6
1.8
68.6
0.62
FY22
225
13.3
1.9
170
18.4
1.6
38.0
18.7
11.4
37.0
18.7
7.3
12.0
2.8
FY23
9.8
6.7
3.1
3.2
18.2
2.8
61.8
14.3
0.1
4.2
36.3
111
6.3
5.4
3.9
1.1
72.7
-0.08
FY23
258
14.9
1.7
203
19.7
1.3
44.0
15.8
9.9
42.8
15.4
6.3
13.3
3.1
FY24
9.9
7.1
2.79
3.6
19.5
3.0
64.2
12.5
0.1
3.7
36.3
113
6.2
5.3
3.3
0.9
74.4
-0.04
FY24
240
-7.1
1.8
196
-3.6
1.4
43.5
-1.0
9.9
42.3
-1.2
6.4
13.5
3.1
FY25E
9.9
7.1
2.75
3.5
19.3
3.1
63.3
13.5
0.1
3.6
35.2
115
6.1
5.1
2.8
0.7
73.0
-0.08
FY25E
275
14.5
1.6
231
17.8
1.2
49.7
14.2
8.7
48.3
14.3
5.6
14.9
3.4
FY26E
9.6
6.9
2.65
3.6
19.2
3.1
62.9
13.1
0.1
3.4
34.6
115
6.1
5.1
2.3
0.7
71.0
-0.06
FY26E
314
14.4
1.4
270
17.2
1.0
56.6
13.8
7.6
55.0
13.9
4.9
17.0
3.9
FY27E
9.4
6.8
2.60
3.5
18.44
2.9
62.9
12.5
0.2
3.3
34.2
115
6.2
5.2
1.9
0.6
70.0
0.06
FY27E
358
13.8
1.2
314
16.0
0.9
62.0
9.5
7.0
60.2
9.4
4.5
18.6
4.3
19 January 2025
13
 Motilal Oswal Financial Services
Sector Update | Financial
January 2025
17
- Microfinance
Sector: Financials - NBFC
Rural Electrification corp.
BSE SENSEX
76,619
S&P CNX
23,203
CMP: INR482
TP: INR630(+31% )
Buy
Driving the future of India’s energy transition
Empowering healthy loan growth while delivering reliable returns
REC stands as a cornerstone in India's energy sector, strategically aligned with the
Stock info
nation’s RE transition and infrastructure development. REC will play a pivotal role
Bloomberg
RECL IN
in India’s ambitious energy targets, including the addition of over 450GW of power
Equity Shares (m)
2633
M.Cap.(INRb)/(USDb)
1270.1 / 14.7
capacity by 2032. The company’s focus on government-backed and RE projects
52-Week Range (INR)
654 / 408
ensures stable returns, leveraging robust cash flows secured through power
1, 6, 12 Rel. Per (%)
-8/-16/6
purchase agreements (PPAs) and central agency guarantees.
12M Avg Val (INR M)
7462
REC will benefit from its strategic alignment with India’s evolving policy landscape.
Free float (%)
47.4
Government initiatives like RDSS and the National Infrastructure Pipeline (NIP) will
Financials snapshot (INR b)
ensure a steady pipeline of projects, enabling REC to maintain its dominance in the
Y/E March
FY25E FY26E FY27E
sector. With a growing focus on clean energy, REC is well-positioned to capitalize
NII
198
224
261
on India’s RE ambitions, further solidifying its role in shaping the country’s energy
PPP
198
225
262
PAT
161
184
209
future.
EPS (INR)
EPS Gr. (%)
BV/Shr (INR)
ABV/Shr (INR)
RoAA (%)
RoE (%)
Div. Payout (%)
Valuation
P/E (x)
P/BV (x)
Div. Yield (%)
61.0
15
306
302
2.7
21.5
29.5
7.9
1.6
3.7
69.8
14
358
355
2.7
21.0
29.4
6.9
1.3
4.2
79.4
14
417
414
2.6
20.5
29.6
6.1
1.2
4.9
Shareholding pattern (%)
As On
Sep-24 Jun-24 Sep-23
Promoter
52.6
52.6
52.6
DII
14.3
14.7
14.1
FII
21.2
20.4
20.4
Others
11.8
12.2
12.9
FII Includes depository receipts
Stock performance (one-year)
REC Ltd
Nifty - Rebased
Superior asset quality and risk management
REC’s asset quality is strong in the current power cycle due to its shift toward
government-sponsored and RE projects. RE loans, which constitute only ~9% of
REC’s portfolio, are supported by PPAs that ensure revenue certainty.
Additionally, shorter execution timelines and back-ended capex for RE projects
mitigate risks. REC’s gross and net NPA ratios stood at 2.5% and 0.9%,
respectively, as of Sep’24, reflecting prudent risk management. The expected
resolution of distressed assets will further strengthen its financial position,
offering upside risks to our estimates from provision reversals and resulting in
improved profitability.
For REC, the exposures to Nagai Power and Lanco Amarkantak have been
resolved. The company has indicated that it is in the advanced stages of
resolution for Sinnar Power Nashik, Hiranmaye, KSK Mahanadi in Chhattisgarh,
TRN Energy, Bhadreshwar Corporate Power, and Konaseema Gas Power. Our
estimates suggest that the resolution of KSK Mahanadi (which could happen in
the next 3-6 months) will translate into write-backs of ~INR5.2b for REC.
Loan growth to remain healthy with ~17% CAGR over FY24-27E
REC’s alignment with the central government’s initiatives ensures a steady pipeline
of projects and minimizes competitive pressures. The gradual improvement in
DISCOMs' financial health further enhances repayment stability. With a diversified
loan portfolio, sovereign-backed operations, and strong capitalization, REC is well-
equipped to maintain its leading position in India’s power financing landscape. We
have cut our loan growth estimate for FY25 to 17% (from ~18% earlier) because of
near-term weakness in the sanctions pipeline amid muted macro-economic
conditions. We estimate that loan growth will remain strong over the next two
years to deliver a ~17% loan CAGR over FY24-27E.
670
590
510
430
350
19 January 2025
14
 Motilal Oswal Financial Services
Sector Update | Financial - Microfinance
Strong loan growth and benign credit costs provide good visibility on earnings
REC combines attractive valuations with strong operational metrics, trading at
1.2x FY27E P/BV while delivering ROE of ~21% over FY26-27E. REC is sweetly
positioned to benefit from India's evolving energy landscape. Its sovereign
backing and access to long-term financing tools allow it to maintain cost
competitiveness and mitigate asset-liability mismatches. Furthermore, the
reversal of provisions on previously distressed thermal assets adds a financial
cushion and will enhance future profitability.
We believe that the risk-reward is attractive considering the strong visibility on
loan growth, earnings growth, and healthy return ratios. All these factors
support a healthy outlook on asset quality.
Maintain BUY on REC with a TP of
INR630 (premised on 1.6x Sep‘26E P/BV).
Downside risks are the same as PFC: 1) slowdown in loan growth in the
distribution segment; 2) the RBI’s proposed stricter provisioning norms for
project financing that would increase the provisioning requirement to ~5.0%
from ~0.4%, which would be gradually brought down, subject to conditions; and
3) asset quality risks from deterioration in the health of state power distribution
companies.
Story in charts
Exhibit 32:
Expect ~17% AUM CAGR over FY24-27E
Loans (INR b)
17
15
13
17
5
2
23
(31)
642
17
Growth YoY (%)
18
18
17
17
Exhibit 33:
Disbursements CAGR of ~21% over FY24-27E
Disbursements (INR b)
67
51
27
20
17
Growth YoY (%)
2,812 3,224 3,774
3,854
4,350 5,094 5,947 7,010 8,242
722
757
930
968
1,615 2,051 2,461 2,879
FY19 FY20 FY21 FY22 FY23 FY24 FY25E FY26E FY27E
Source: MOFSL, Company
FY19 FY20 FY21 FY22 FY23 FY24 FY25E FY26E FY27E
Source: MOFSL, Company
Exhibit 34:
Spreads to stabilize at ~2.5% in FY26/FY27E
Yields (%)
3.5
2.8
7.3
3.0
2.9
2.7
7.2
2.7
7.2
2.5
7.1
2.5
CoB (%)
Spreads (%)
Exhibit 35:
NIMs expected to decline ~15bp in FY26E
NIMs (%)
4.4
3.7
3.7
3.9
3.8
3.6
3.7
3.5
3.5
7.1
6.8
10.1
FY20
10.1
FY21
10.3
FY22
9.7
6.7
9.9
FY24
9.9
9.6
7.1
9.5
FY19 FY20 FY21 FY22 FY23 FY24 FY25E FY26E FY27E
Source: MOFSL, Company
FY23
FY25E FY26E FY27E
Source: MOFSL, Company
19 January 2025
15
 Motilal Oswal Financial Services
Sector Update | Financial - Microfinance
Exhibit 36:
Credit costs to remain benign (%)
Credit Cost (%)
0.94
0.71
Exhibit 37:
Asset quality will continue to improve
GNPA %
65
50
67.4
70.6
NNPA %
68.5
68.0
PCR %
68.0
66.0
0.31
0.03
(0.29)
(0.08) (0.07)
0.01
6.6
4.8
3.3
1.7
4.5
1.5
FY22
3.4
2.7
1.0
0.9 2.10.7 1.60.5 1.30.4
FY24 FY25E FY26E FY27E
Source: MOFSL, Company
FY20
FY21
FY22
FY23
FY24
FY25E FY26E FY27E
FY20
FY21
FY23
Source: MOFSL, Company
Exhibit 38:
Expect ~14% PAT CAGR over FY24-27E
PAT (INR b)
71.1
Growth YoY (%)
Exhibit 39:
Expect healthy ~20-21% ROE over FY26-27E
RoA
21.2
14.1
21.1
20.3
22.2
RoE
21.5
21.0
20.5
30.4
-15.2
49
58
84
100
111
20.1
10.0
26.8
14.6
14.5
13.7
140
161
184
209
1.5
FY20
2.2
FY21
2.5
FY22
2.5
FY23
2.8
FY24
2.7
2.7
2.6
FY19 FY20 FY21 FY22 FY23 FY24 FY25E FY26E FY27E
Source: MOFSL, Company
FY25E FY26E FY27E
Source: MOFSL, Company
Exhibit 40:
DuPont analysis
Y/E March
Interest Income
Interest Expended
Net Interest Income
Other Operating Income
Other Income
Net Income
Operating Expenses
Operating Income
Provisions/write offs
PBT
Tax
Reported PAT
Leverage
RoE
FY20
9.2
5.9
3.3
-0.7
0.0
2.6
0.2
2.4
0.3
2.2
0.7
1.5
9.3
14.1
FY21
9.3
5.8
3.5
0.1
0.0
3.6
0.1
3.5
0.6
2.9
0.6
2.2
9.5
21.2
FY22
9.4
5.4
4.0
0.0
0.0
4.0
0.1
3.9
0.9
3.1
0.6
2.5
8.5
21.1
FY23
8.9
5.4
3.4
-0.2
0.0
3.3
0.1
3.2
0.0
3.1
0.6
2.5
8.0
20.3
FY24
9.2
5.9
3.3
0.1
0.0
3.4
0.1
3.2
-0.3
3.5
0.7
2.8
8.0
22.2
FY25E
9.2
5.8
3.3
0.1
0.0
3.5
0.1
3.3
-0.1
3.4
0.7
2.7
7.9
21.5
FY26E
FY27E
9.0
9.0
5.8
5.8
3.2
3.2
0.1
0.1
0.0
0.0
3.4
3.4
0.1
0.1
3.3
3.2
-0.1
0.0
3.3
3.2
0.7
0.6
2.7
2.6
7.9
7.9
21.0
20.5
Source: MOFSL, Company
19 January 2025
16
 Motilal Oswal Financial Services
Sector Update | Financial - Microfinance
Exhibit 41:
Our EPS estimates are largely unchanged
INR B
NII
Other Income
Net Income
Operating Expenses
Operating Profits
Provisions
PBT
Tax
PAT
Loans
Spreads (%)
RoAA (%)
RoAE (%)
FY25
198.6
7.6
206.2
7.6
198.6
-4.2
202.8
41.8
161.0
5,989
2.67
2.7
21.5
Old Est.
FY26
226.5
9.9
236.4
8.7
227.7
-0.5
228.2
45.6
182.6
7,103
2.50
2.6
20.9
FY27
265.2
11.6
276.8
9.8
267.0
1.7
265.3
53.1
212.3
8,434
2.45
2.6
20.8
FY25
197.8
7.6
205.4
7.6
197.8
-4.5
202.3
41.7
160.6
5,947
2.67
2.7
21.5
New Est.
FY26
224.2
9.9
234.1
8.7
225.4
-4.4
229.8
46.0
183.9
7,010
2.50
2.7
21.0
FY27
260.5
11.6
272.1
9.8
262.3
1.1
261.2
52.2
209.0
8,242
2.45
2.6
20.5
FY25
-0.4
0.0
-0.4
0.0
-0.4
-
-0.2
-0.2
-0.2
% change
FY26
-1.0
0.0
-1.0
0.0
-1.0
-
0.7
0.7
0.7
FY27
-1.8
0.0
-1.7
0.0
-1.8
-35
-1.6
-1.6
-1.6
Source: MOFSL, Company
Exhibit 42:
Trend in P/B ratio (one-year forward)
P/B (x)
Min (x)
2.4
2.0
1.8
1.2
0.6
0.0
0.3
1.0
0.7
0.3
Avg (x)
+1SD
Max (x)
-1SD
Exhibit 43:
Trend in P/E ratio (one-year forward)
12.0
9.0
6.0
3.0
0.0
P/E (x)
Min (x)
Avg (x)
+1SD
Max (x)
-1SD
10.1
5.7
3.7
1.7
1.5
1.4
7.0
Source: MOFSL, Company
Source: MOFSL, Company
19 January 2025
17
 Motilal Oswal Financial Services
Sector Update | Financial - Microfinance
Financials and valuations
Income Statement
Y/E March
Interest on Loans
Interest Exp and Other Charges
Net Interest Income
Change (%)
Forex Gains/(Losses)
Net Interest Income
(including forex gains/losses)
Other Operating Income
Other Income
Net Total Income
Change (%)
Employee Cost
Administrative Exp
Depreciation
Total Operating Expenses
PPoP
Change (%)
Total Provisions
% to Operating Income
PBT
Tax (Incl Deferred tax)
Tax Rate (%)
PAT
Change (%)
Balance Sheet
Y/E March
Capital
Reserves & Surplus
Net Worth
Borrowings
Change (%)
Total Liabilities
Investments
Change (%)
Loans
Change (%)
Net Fixed Assets
Net current assets
Total Assets
E: MOSL Estimates
FY19
249.7
156.4
93.3
6.6
-5.2
88.1
-0.1
0.3
88.3
3.4
1.6
3.2
0.1
4.9
83.4
2.0
2.4
2.9
81.0
23.4
28.8
57.6
30.4
FY20
296.6
190.0
106.7
14.3
-23.6
83.1
1.0
0.6
84.7
-4.0
1.8
4.2
0.1
6.0
78.7
-5.6
8.9
11.3
69.8
21.0
30.0
48.9
-15.2
FY21
346.8
214.9
131.9
23.7
-3.3
128.6
7.0
0.2
135.9
60.4
1.4
2.6
0.1
4.2
131.8
67.4
24.2
18.4
107.6
23.9
22.3
83.6
71.1
FY22
381.9
220.5
161.3
22.3
-8.0
153.3
9.5
1.0
163.8
20.5
1.6
3.0
0.2
4.8
159.0
20.7
34.7
21.8
124.2
23.8
19.1
100.5
20.1
FY23
388.4
237.4
151.0
-6.4
-11.1
139.8
3.7
0.4
144.0
-12.1
1.8
3.4
0.2
5.5
138.5
-12.9
1.1
0.8
137.4
26.8
19.5
110.5
10.0
FY24
464.1
299.5
164.6
9.0
-1.7
162.9
7.2
0.7
170.8
18.6
2.1
4.2
0.2
6.6
164.2
18.5
-13.6
-8.3
177.8
37.6
21.2
140.2
26.8
FY25E
543.1
345.3
197.8
20.2
-1.9
195.9
8.6
0.8
205.4
20.3
2.5
4.9
0.2
7.6
197.8
20.5
-4.5
-2.3
202.3
41.7
20.6
160.6
14.6
FY26E
623.8
399.5
224.2
13.3
-1.5
222.7
10.4
1.0
234.1
14.0
2.8
5.6
0.3
8.7
225.4
14.0
-4.4
-1.9
229.8
46.0
20.0
183.9
14.5
(INR b)
FY27E
728.6
468.1
260.5
16.2
-1.5
259.0
11.9
1.2
272.1
16.2
3.2
6.4
0.3
9.8
262.3
16.3
1.1
0.4
261.2
52.2
20.0
209.0
13.7
(INR b)
FY27E
26
1,071
1,098
7,187
18.0
8,285
99
15.0
8,121
17.9
7
0
8,227
FY19
20
323
343
2,395
13.5
2,738
24
-6.9
2,705
12.9
4
0
2,732
FY20
20
331
351
2,815
17.5
3,166
23
-3.5
3,121
15.4
5
0
3,148
FY21
20
418
438
3,228
14.7
3,666
19
-17.4
3,653
17.0
6
0
3,678
FY22
20
493
513
3,263
1.1
3,776
22
13.0
3,719
1.8
6
0
3,747
FY23
26
550
577
3,808
16.7
4,385
31
45.4
4,221
13.5
6
0
4,259
FY24
26
661
688
4,456
17.0
5,144
53
69.5
4,992
18.3
7
0
5,052
FY25E
26
780
806
5,162
15.8
5,969
72
35.0
5,823
16.6
7
0
5,901
FY26E
26
916
943
6,092
18.0
7,035
86
20.0
6,887
18.3
7
0
6,981
19 January 2025
18
 Motilal Oswal Financial Services
Sector Update | Financial - Microfinance
Financials and valuations
Loans and Disbursements
Gross Loans (INR b)
YoY Growth (%)
Disbursements (INR b)
YoY Growth (%)
Ratios
Y/E March
Spreads Analysis (%)
Avg. Yield - on Financing
Portfolio
Avg Cost of Funds
Interest Spread
Net Interest Margin
Profitability Ratios (%)
RoE
RoA
Efficiency Ratios (%)
Int. Expended/Int.Earned
Other operating Inc./Net
Income
Other Income/Net Income
Op. Exps./Net Income
Empl. Cost/Op. Exps.
Asset-Liability Profile (%)
Loans/Borrowings Ratio
Assets/Networth
Debt/Equity Ratio
Asset Quality (%)
Gross Stage 3
Net Stage 3
PCR
Credit costs
Valuations
Book Value (INR)
BV Growth (%)
Price-BV (x)
Adjusted Book Value (INR)
ABV Growth (%)
Price-ABV (x)
EPS (INR)
EPS Growth (%)
Price-Earnings (x)
Dividend
Dividend Yield (%)
E: MOFSL Estimates
FY19
2,812
17
722
17
FY20
3,224
15
757
5
FY21
3,774
17
930
23
FY22
3,854
2
642
-31
FY23
4,350
13
968
51
FY24
5,094
17
1,615
67
FY25E
5,947
17
2,051
27
FY26E
7,010
18
2,461
20
FY27E
8,242
18
2,879
17
FY19
9.7
6.9
2.8
3.7
17.0
2.1
62.6
-0.1
0.4
5.5
32.2
112.9
8.0
7.0
7.2
3.8
47.7
0.1
FY20
10.1
7.3
2.8
3.7
14.1
1.5
64.0
1.2
0.8
7.1
29.2
110.9
9.0
8.0
6.6
3.3
49.6
0.3
FY21
10.1
7.1
3.0
3.9
21.2
2.2
62.0
5.2
0.2
3.1
34.9
113.1
8.4
7.4
4.8
1.7
64.6
0.7
FY22
10.3
6.8
3.5
4.4
21.1
2.5
57.8
5.8
0.6
2.9
33.1
114.0
7.3
6.4
4.5
1.5
67.4
0.9
FY23
9.7
6.7
2.9
3.8
20.3
2.5
61.1
2.6
0.3
3.8
33.2
110.8
7.4
6.6
3.4
1.0
70.6
0.0
FY24
9.9
7.2
2.7
3.6
22.2
2.8
64.5
4.2
0.4
3.9
32.4
112.0
7.3
6.5
2.7
0.9
68.5
-0.3
FY25E
9.9
7.2
2.7
3.7
21.5
2.7
63.6
4.2
0.4
3.7
32.4
112.8
7.3
6.4
2.1
0.7
68.0
-0.1
FY26E
9.6
7.1
2.5
3.5
21.0
2.7
64.1
4.4
0.4
3.7
32.3
113.1
7.4
6.5
1.6
0.5
68.0
-0.1
FY27E
9.5
7.1
2.5
3.5
20.5
2.6
64.2
4.4
0.4
3.6
32.5
113.0
7.5
6.5
1.3
0.4
66.0
0.0
174
2.8
2.8
160
1.4
3.0
29.2
30.4
16.5
11.0
2.3
178
2.3
2.7
164
2.4
2.9
24.7
-15.2
19.5
11.0
2.3
222
24.8
2.2
213
30.1
2.3
42.3
71.1
11.4
12.7
2.6
260
17.3
1.9
253
18.4
1.9
50.9
20.1
9.5
15.3
3.2
219
-15.7
2.2
215
-15.0
2.2
42.0
-17.5
11.5
12.6
2.6
261
19.3
1.8
257
19.6
1.9
53.2
26.8
9.1
16.0
3.3
306
17.2
1.6
302
17.6
1.6
61.0
14.6
7.9
18.0
3.7
358
16.9
1.3
355
17.3
1.4
69.8
14.5
6.9
20.5
4.2
417
16.4
1.2
414
16.6
1.2
79.4
13.7
6.1
23.5
4.9
Investment in securities market are subject to market risks. Read all the related documents carefully before investing.
19 January 2025
19
 Motilal Oswal Financial Services
Sector Update | Financial - Microfinance
NOTES
19 January 2025
20
 Motilal Oswal Financial Services
Sector Update | Financial - Microfinance
Explanation of Investment Rating
Investment Rating
BUY
SELL
NEUTRAL
UNDER REVIEW
NOT RATED
Expected return (over 12-month)
>=15%
< - 10%
< - 10 % to 15%
Rating may undergo a change
We have forward looking estimates for the stock but we refrain from assigning recommendation
*In case the recommendation given by the Research Analyst is inconsistent with the investment rating legend for a continuous period of 30 days, the Research Analyst shall be within following 30 days take
appropriate measures to make the recommendation consistent with the investment rating legend.
Disclosures
The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations).
Motilal Oswal Financial Services Ltd. (MOFSL) is a SEBI Registered Research Analyst having registration no. INH000000412. MOFSL, the Research Entity (RE) as defined in the Regulations, is engaged in
the business of providing Stock broking services, Depository participant services & distribution of various financial products. MOFSL is a listed public company, the details in respect of which are available on
www.motilaloswal.com. MOFSL (erstwhile Motilal Oswal Securities Limited - MOSL) is registered with the Securities & Exchange Board of India (SEBI) and is a registered Trading Member with National Stock
Exchange of India Ltd. (NSE) and Bombay Stock Exchange Limited (BSE), Multi Commodity Exchange of India Limited (MCX) and National Commodity & Derivatives Exchange Limited (NCDEX) for its stock
broking activities & is Depository participant with Central Depository Services Limited (CDSL) National Securities Depository Limited (NSDL),NERL, COMRIS and CCRL and is member of Association of
Mutual Funds of India (AMFI) for distribution of financial products and Insurance Regulatory & Development Authority of India (IRDA) as Corporate Agent for insurance products.
Details of associate entities
of Motilal Oswal Financial Services Limited are available on the website at
http://onlinereports.motilaloswal.com/Dormant/documents/List%20of%20Associate%20companies.pdf
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9 MOFSL has not received any compensation or other benefits from third party in connection with the research report
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in some of the stocks mentioned in the research report.
- acted as a manager or co-manager of public offering of securities of the subject company in past 12 months
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as an advisor or lender/borrower to such company(ies)
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 Motilal Oswal Financial Services
Sector Update | Financial - Microfinance
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Registration details of group entities.: Motilal Oswal Financial Services Ltd. (MOFSL): INZ000158836 (BSE/NSE/MCX/NCDEX); CDSL and NSDL: IN-DP-16-2015; Research Analyst: INH000000412 . AMFI:
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