Valuation re-rating to continue
With enhanced confidence in the business, we upgrade our 2‐year price target on PFS to Rs80 from Rs65 representing a significant 43% upside from the current price. Since our initiation report at Rs32 released on July 1, 2014, the stock has already delivered 75% return. Government’s policy thrust on power sector particularly in the renewable space and encouraging interactions with the management has strengthened our conviction in PFS. In our view, company’s loan assets would grow 3x over FY14‐17 underpinning a 51% CAGR in pre‐exceptional PBT. We believe that PFS can deliver sustainable RoA of 3.3‐3.5% and RoE of 17‐18% while operating on a comfortable leverage. Current valuation of 1.6x FY17E P/ABV is attractive in this context and represents material room for incremental re‐rating.