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PFC, REC shares continue to plunge on higher NPA

LiveMint logoLiveMint 31-05-2017 Ravindra N. Sonavane

Mumbai: Shares of state-run Power Finance Corp. Ltd and Rural Electrification Corp. Ltd continued to plummet after both the financial firms reported surprised rise in non-performing assets (NPAs).

Both PFC and REC traded lower in last eight out of ten trading sessions and declined 10% and 12%, respectively, and year to date, it gained 10% and 58% respectively. At 12pm, PFC fell 2.1% to Rs133.85 while REC declined 4% to Rs196.98.

Power Finance posted a surprised loss of Rs3,409 crore in March quarter due to higher provisions and lower net interest income. Provisions surged over 700% to Rs4,479.33 crore from Rs537.29 crore a year ago. Net interest income fell 40% to Rs1,538 crore. Its gross NPA rose to 12.5% in fiscal year 2017 from 3.15% a year ago.

“On operational front, PFC witnessed a weak momentum with large portion of fresh disbursements were towards short term loans. Though the management remains confident of reversals of recently added NPAs (being from state owned companies), we continue to remain sceptical considering weaker state balance sheets and absence of demand for power,” said Quant Broking in a 30 May report.

“We have been highlighting our concerns over sustainability of business model and risk of defaults since past many quarters which is materializing now,” the report added. It maintained “sell” rating on the stock and reduced target price to Rs136 a share from Rs134.

REC reported a 25% decline in its net profit on quarter on quarter basis to Rs1,319.23 crore. Its provisions surged over 3900% on quarter on quarter basis to Rs616.19 crore.

“Investors expects that from hereon both the companies likely to go 90 days NPA recognition which may lead to report weak earnings”, said Jignesh Shial, analyst with Quant Broking Pvt Ltd.

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