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Informist, Wednesday, Aug. 6, 2025

By Aaryan Khanna

MUMBAI – Power Finance Corp. Ltd. is likely to see a rise in its net profit on year in the June quarter as its business expands even as a rise in provisions and expenses keeps gains in check. The power financier's bottom line is seen contracting on a sequential basis, with margins seen under pressure. 

The lender's net profit is seen in a range of INR 39.44 billion to INR 44.25 billion in the June quarter, according to three brokerages. Sharekhan Ltd. has the highest estimate, while Emkay Global Financial Services Ltd. has the lowest. The power financier's profit after tax in the trailing quarter was INR 51.09 billion and in the year-ago quarter it was INR 37.18 billion. The company will detail its earnings Wednesday.

The lender's net interest income is seen at INR 48.47 billion – INR 49.88 billion in the June quarter, up from INR 43.28 billion a year ago. Assets under management are expected to rise 16-17% at the end of June from INR 4.75 trillion a year ago. Even with seasonally sluggish disbursements, the lender will benefit from a low base of only INR 194.83 billion in the June quarter last year. Motilal Oswal Financial Services Ltd. sees disbursements in the reporting quarter nearly halving from INR 679.68 billion in Jan-Mar.

"Disbursements in the power sector are likely to remain soft, partly due to loan repayments by state utilities, which have led to slower-than-expected AUM growth for REC and PFC," Emkay said in a pre-earnings report. While Emkay sees gains from recoveries of stressed assets in the sector, Motilal Oswal said the insolvency resolution of TRN Energy Ltd. will help PFC's bottom line in the September quarter.

Emkay said credit costs would fall to 0.10% in the June quarter from 0.35% in the trailing quarter. Sharekhan expects credit costs, or loan losses as a percentage of assets, to decline on a sequential basis. However, this would be higher than the Apr-Jun 2024 quarter, when credit costs were 0.05%, as the lender benefitted from a gain on fair value changes that reduced total expenses.

Margins are expected to shrink sequentially but rise slightly from the year-ago quarter. The net interest margin on earning assets was 3.55% in Apr-Jun 2024, but rose to 3.64% for FY25. The lender did not disclose the margin for the March quarter, but Emkay said it was 3.79%. Overall margins may also fall slightly as the power financier increases its share of disbursements to renewable power projects, Emkay said.

"The benefit of a 100-bps policy rate cut in the borrowing costs would largely reflect from H2FY26 (Oct-Mar) as transmission of rate cuts through bank MCLR (marginal-cost-of-funds-based lending rate) would be gradual," Sharekhan wrote in its pre-earnings note.

Motilal Oswal said the provisioning for power financiers, including PFC, will not rise materially due to the Reserve Bank of India's final norms on project financing issued in June. According to the final directions, which will come into effect from Oct. 1, the standard asset provisioning requirement has been lowered to 1% during the construction phase of projects compared with the 5% requirement suggested in the draft norms, but up from 0.4% currently.

Sharekhan said in its pre-earnings note that PFC was a top preferred pick. All five brokerages whose research reports are available with Informist have 'buy' calls on the state-owned lender's stock, at an average target price of INR 502. At 1041 IST, shares of Power Finance were traded at INR 407.65 on the National Stock Exchange, down 1.4%. The stock is down 1.2% since the company announced its March quarter earnings.  

Following are the Apr-Jun earnings estimates for Power Finance Corp. based on reports from three brokerages in descending order of estimates of net profit:

End

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Edited by Deepshikha Bhardwaj

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