The follow on offer (FPO) of Power Finance Corporation (PFC) has opened for subscription. I believe that one should go and apply for this FPO as PFC is very attractively priced at 203. I recommend PFC from a long term perspective as we do know that the whole power sector looks promising from a long term view and the companies financing them should also do good. Retail investors are also getting a 5% kind of discount on the issue price which comes down to 192. A price of 192 for PFC is really really attractive from a long term view.

From a valuation perspective, PFC posted an EPS of 22.82 in FY11 which relates to a P/E of 8.41 on a price of 192. If a retail investor is getting a piece of Power Finance Corporation at a current P/E multiple of 8.41, I think it could not have been better. PFC is not a small or tiny company, it is a very large company that has been unnecessarily hammered down due to various concerns and I don’t think those concerns mean anything in the long term as this whole sector is one of the most important ones for India to grow.

If we assume an EPS growth of even 13% or so, we can see FY12 EPS around 26 or so which relates to a one year forward P/E multiple of  7.5 or so. Valuations look really cheap and I can expect a re rating of the company in FY12. The stock should atleast hold a P/E of 10 in the long run if not more. So if nothing, PFC can go upto 260 in 12 months from now. Even for short term traders, this FPO is looking interesting as it can give you a 10% kind of profit after implementing that 5% discount to retail investors. It could be similar like Power Grid which was giving us an easy profit.

Subscribe to PFC FPO and hold the stock from a long term view.

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