Power Finance Corporation Rating: buy New dividend norms to offer structural boost
RBI’s draft circular on dividend declaration by NBFCs links eligibility and quantum of dividend distribution to net NPA, CRAR and leverage. For PFC, categorised as NBFC-ND-SI, based on its past three years’ CRAR and current net NPA print, the criteria matrix (as per draft circular) makes it eligible for dividend payout of up to 25% of earnings (vs its current policy of 30% of earnings or 5% of net worth, whichever is higher).
However, eligibility criteria are expected to accelerate structural improvement of PFC’s balance sheet for it to pay out higher dividends (shore up CRAR to >18% and contain net NPA to sustain at 10%, steady-state RoE profile of >14% and anticipated stress resolution, we maintain Buy on the stock.
