Power Finance Corporation Limited — Q2 FY26 earnings call

Call held 7 Nov 2025

Management summary

Power Finance Corporation reported a strong Q2/H1 FY26, with consolidated profit after tax increasing 17% year-on-year to ₹16,816 crores. The company demonstrated robust loan asset book growth, with standalone book up 14% and group book up 10% year-on-year, driven by a 30% increase in H1 disbursements to ₹86,000 crores. Asset quality improved significantly, with Net NPA reaching a 10-year low of 0.37% and Gross NPA declining 84 bps to 1.87%. However, the company recorded an exchange loss of ₹1,100 crores in H1 FY26 due to Euro appreciation, and its book value per share has declined due to bonus share issues.

Highlights

  • Consolidated PAT for H1 FY26 stood at ₹16,816 crores, marking a 17% increase year-on-year.

  • Group Loan Asset Book grew 10% year-on-year to ₹11,43,370 crores as of September 30, 2025.

  • Standalone Loan Asset Book registered a 14% growth to ₹5,61,210 crores.

  • H1 Disbursements were robust at ₹86,000 crores, a 30% increase from the previous half year.

  • Net NPA Ratio reached a 10-year low of 0.37% for H1 FY26, with Gross NPA declining 84 bps to 1.87%.

  • CRAR maintained at 21.62% with Tier 1 at 19.89%, well above regulatory minimums.

  • Interim dividend of ₹3.65 per share declared, bringing cumulative FY26 dividend to ₹7.35 per share.

Concerns

  • Exchange Loss of ₹1,100 crores in H1 FY26, primarily due to Euro appreciating ~8% against USD.

  • Book Value Per Share (BVPS) declined from ₹424 (2023) to ₹356 (2025) due to bonus share issues.

Key financials

3 periods

Headline

  • Group Loan Asset Book
    ₹11.43L Cr
    YoY +10%
  • Consolidated Gross NPA
    1.4%
  • Consolidated Net NPA
    0.3%
  • CRAR
    21.6%

H1

  • Disbursements
    ₹86,000 Cr
    YoY +30%

H1 FY26

  • Consolidated PAT
    ₹16,816 Cr
    YoY +17%
  • NIM
    3.6%

What they filed

Q1 FY27: revenue down 0.0%, net profit up 0.2% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue25,722 26,798 29,265 28,539 28,890 +12%29,095 +9%28,920 −1%28,527 −0%
Net profit7,215 7,760 8,358 8,981 7,834 +9%8,212 +6%8,598 +3%8,998 +0%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Capital allocation

high confidence
  • Dividend ₹3.65/share (interim) Payout ratio 30%
    the board has declared an interim dividend of Rs.3.65 per share. With this, the cumulative interim dividend for FY'26 stands at Rs.7.35 per share. ... the profit what we are earning is we have been paying a dividend at a rate of around 30% of our profit after tax.
  • Liquidity Liquidity disclosed CRAR at 21.62% with Tier 1 capital at 19.89%. 95% hedging maintained on total foreign currency portfolio for exchange risk.
    As on 30th September 2025, our CRAR is at 21.62% with tier 1 capital at 19.89%. The CRAR is well above the minimum regulatory requirements. ... We continue to maintain 95% hedging on the total foreign currency portfolio for exchange risk.

Guidance & targets

Loan Book Growth

  • Loan book growth Loan Book Growth · FY26 · High confidence 10%-11%
    For FY26, we continue to maintain our loan book growth guidance of 10%-11%.

    — Parminder Chopra, CMD

Profitability

  • Spread Profitability · Ongoing · High confidence 2.55%
    The spread and NIM continue to be within our guided range at 2.55% and 3.62% respectively.

    — Parminder Chopra, CMD

  • NIM Profitability · Ongoing · High confidence 3.62%

    — Parminder Chopra, CMD

Provisioning

  • Provisioning for construction phase (new sanctions) Provisioning · From Oct 1, 2025 · High confidence 1%
    As per these directions, provisioning of 1% is required to be maintained during construction phase and 0.40% during the operational phase after commencement of repayment of interest and principal.

    — Parminder Chopra, CMD

  • Provisioning for operational phase (new sanctions) Provisioning · From Oct 1, 2025 · High confidence 0.40%

    — Parminder Chopra, CMD

Risk Weights

  • Risk weights for infrastructure exposures Risk Weights · From April 1, 2026 · High confidence 50% and 75% slabs

    Previously 50% → 50% and 75% slabs

    In the current framework, 50% risk weight is applicable for eligible commissioned infrastructure projects... However, in the draft framework, risk weight is now split into two slabs of 50% and 75%.

    — Parminder Chopra, CMD

Shareholder Returns

  • Dividend payout ratio Shareholder Returns · Ongoing · High confidence 30%
    See, the profit what we are earning is we have been paying a dividend at a rate of around 30% of our profit after tax.

    — Parminder Chopra, CMD

What to watch in Q3 FY26

FOREX Loss Reversal

next quarter
Current ₹1,100 crores loss in H1 FY26
Target Reduction in loss or gain

Why it matters

Significant impact on profitability; management expects gradual reversal if dollar strengthens against Euro.

Because of the uncertainty, which is there and the weakening of the dollar, we have seen that Euro appreciating a lot... what we expect and this is primarily the major amount is towards the strengthening of the Euro. But I would like to mention that in case of Euro, we have longer maturities... we are expecting that these losses will be reversed gradually from quarter-to-quarter.

Risks & concerns

  • FOREX Volatility and Exchange Losses

    medium

    The company incurred an exchange loss of ₹1,100 crores in H1 FY26, primarily due to the Euro appreciating ~8% against the USD, impacting profitability.

    Management acknowledged

  • Increased Competition in Infrastructure Lending

    medium

    Growing competition from other financial institutions (IRFC, HUDCO, NABARD, NaBFID) could put pressure on NIMs and market share.

    Analyst acknowledged

  • Prepayment Risk from Borrowers

    medium

    Increased prepayments, especially from renewable projects, due to borrowers seeking better terms, could impact net loan book growth and require higher disbursements to compensate.

    Analyst acknowledged

  • Regulatory Changes (RBI Risk Weights)

    medium

    A draft RBI circular on risk weights for infrastructure exposures, effective April 1, 2026, could change capital requirements, and its full implications are still being reviewed.

    Management acknowledged

Q&A highlights

5 direct, 1 evasive
Kaleshwaram Project Exposure & Prepayments Direct
Till now, we have not received any prepayments from the Kaleshwaram project. Our exposure is approximately Rs.26,000 crores. ... But under this project, we have a government guarantee as well as the budgetary support from the government, and the funding was based, apart from other things, based on the security of the state government. So, we do not see any risk in the repayment of the loan to PFC.

Clarified the status of a significant exposure (₹26,000 crores) and addressed concerns about prepayments and repayment risk, assuring investors of government guarantees.

Asked by Shreepal Doshi

Book Value Per Share (BVPS) Decline Direct
I think we, if you remember correctly, twice we have issued bonus shares. At one stage, we have issued 1:1 bonus share, and at other time, we have issued 4:1 as the bonus share. That could be the reason for reduction in the book value.

Explained the reason for the observed decline in BVPS, attributing it to bonus share issues rather than operational underperformance, which is crucial for valuation.

Asked by Ankit Mehta

FOREX Loss & Reversal Expectations Partial
Because of the uncertainty, which is there and the weakening of the dollar, we have seen that Euro appreciating a lot. Euro has appreciated to approximately 8% during the half year. ... we are expecting that these losses will be reversed gradually from quarter-to-quarter.

Addressed the significant ₹1,100 crores exchange loss, explaining its cause and providing a forward-looking view on potential reversal, which impacts future profitability.

Asked by Raghu

Competition and NIM Sustainability Direct
So, there is definitely competition in the market, but I would like to state, there is enough scope for business for each one of us to grow. So, yes, we have to see that how competitive we can be. But till now, we are expecting that we will be able to maintain our spreads and margins.

Acknowledged increasing competition from other financial institutions but expressed confidence in maintaining spreads and margins, which is key for profitability.

Asked by Raghu

Loan Book Growth Pace vs. Guidance Partial
I think with the number of lot of routine repayments also, even if we have to grow at 10-11%, we have to disburse around Rs.2 lakh crores and to grow at a base of last year Rs.5,41,000 crores itself is a huge amount. We would like to be prudent in our approach in lending.

Clarified the rationale behind the 10-11% loan growth guidance, emphasizing the large base and the significant disbursement required, indicating a prudent growth strategy.

Asked by Raghu

Prepayment Impact on Loan Book Growth Direct
See, I agree with you that we are trying our best to arrest the prepayments in our loan book, but the terms and conditions are to be in line with the market expectation. If any of the borrower is getting better terms and conditions from any other borrower, so they would like to choose that lender.

Addressed concerns about increasing prepayments, particularly from renewable projects, and how the company balances market competitiveness with maintaining loan book growth.

Asked by Sarvesh Gupta

Discom Bailout News and Accelerated Prepayments Evasive
See, a committee of group of ministers have been formed to assess the viability of the discoms and they are working on the various ways and means and they have not yet submitted the report. Once we have some clarity on the report, only then we will be able to comment on anything.

Management deferred comment on a potentially significant event (discom bailout) that could impact prepayments, indicating uncertainty and a wait-and-see approach.

Asked by Suraj Das

Buyback Possibility Direct
Right now, there are no plans.

Directly answered a question about potential share buybacks, indicating no immediate plans despite the company's strong RoE and capital position.

Asked by Raghu

3 min read 7 chapters

Detailed narrative

Strong Financial Performance in H1 FY26

Power Finance Corporation reported a robust H1 FY26, with consolidated profit after tax reaching ₹16,816 crores, a 17% increase year-on-year. The group loan asset book expanded by 10% year-on-year to ₹11,43,370 crores as of September 30, 2025, while the standalone loan asset book grew 14% to ₹5,61,210 crores. This growth was supported by strong disbursements of ₹86,000 crores in H1 FY26, marking a 30% increase from the previous half year, with 57% directed to the distribution segment and 30% to generation projects.

Significant Improvement in Asset Quality

The company achieved its lowest net NPA ratio in a decade, standing at 0.37% for H1 FY26. Consolidated gross NPA improved to 1.45%, and standalone gross NPA declined by 84 basis points from 2.71% in H1 FY25 to 1.87% in H1 FY26. The Stage-3 NPA book is currently at ₹10,490 crores, backed by a healthy provisioning coverage of 80%. Out of 22 stressed projects, 11 projects worth ₹8,470 crores are under NCLT resolution, with 6 projects totaling ₹2,600 crores under liquidation, for which 100% provisioning is maintained.

Stable Margins and Capital Adequacy

PFC maintained its financial stability with a yield of 9.98% and a cost of funds at 7.43% for H1 FY26, resulting in a spread of 2.55% and a Net Interest Margin (NIM) of 3.62%, both within the guided range. The company's capital adequacy remains strong, with a Capital to Risk-weighted Assets Ratio (CRAR) of 21.62% and Tier 1 capital at 19.89% as of September 30, 2025, comfortably exceeding minimum regulatory requirements. An interim dividend of ₹3.65 per share was declared, contributing to a cumulative FY26 interim dividend of ₹7.35 per share.

Strategic Expansion and Renewable Energy Focus

PFC is actively expanding its market presence, including its first cross-border financing deal of ₹4,800 crores for the 600 MW Khorlochhu Hydro Power Project in Bhutan, to be financed in Rupee. The company also secured a 60 billion Yen loan agreement with JBIC for a bamboo-based bio-ethanol project in Assam and partnered with Export Finance Australia for USD180 million in clean energy projects. These initiatives underscore PFC's commitment to diversifying funding sources and accelerating India's clean energy transition, solidifying its position as the largest renewable sector financier in India with a renewable loan book of ₹84,680 crores as of September 30, 2025.

Impact of FOREX Volatility and Management Strategy

The company reported an exchange loss of approximately ₹1,100 crores in H1 FY26, primarily due to the Euro appreciating around 8% against the USD, affecting its unhedged portfolio and derivative book. Management acknowledged this impact but expressed confidence in a gradual reversal of these losses from quarter-to-quarter if the dollar strengthens against the Euro, citing the long-term maturity of Euro-denominated loans. PFC remains focused on actively managing its forex exposure to ensure resilient financial performance.

RBI Regulatory Updates and Implications

New RBI project financing directions, effective October 1, 2025, mandate 1% provisioning during the construction phase and 0.40% during the operational phase for new loan sanctions. PFC currently maintains approximately 1.01% provisioning on its Stage-1 and Stage-2 assets, which already exceeds the statutory requirement. Additionally, a draft RBI circular released on October 24, 2025, proposes new risk weight slabs of 50% and 75% for NBFC infrastructure exposures, applicable from April 1, 2026, which PFC is currently reviewing for its detailed implications across its portfolios.

Managing Competition and Prepayment Risks

PFC faces increasing competition from other financial institutions such as IRFC, HUDCO, NABARD, and NaBFID in the infrastructure lending market. While acknowledging this competitive landscape, management believes there is ample scope for growth and expects to maintain its spreads and margins. The company also noted an increase in prepayments, particularly from renewable projects, as borrowers seek better terms. Despite these challenges, PFC aims to manage its loan book to achieve its FY26 growth guidance of 10-11%.

This is an AI-generated summary of a publicly available earnings call transcript.
View original transcript

More Financial Services earnings calls