PFC, REC shares rally up to 3% after Emkay initiates coverage with up to 31% upside

Shares of PSU power financiers REC Ltd and PFC rallied 2.8% on Friday after domestic brokerage firm Emkay Global initiated coverage on the two stocks saying that the controlled upcycle in power capex and lending is here to stay, and both players provide the optimal path to ride it.

PFC shares rallied 2.8% to Rs 472.40 on BSE while REC share price also rose 2.8% to Rs 533.55 on the stock exchange.

"We initiate coverage on PFC and REC with BUY and Dec-25E TP of Rs 600 and Rs 650 (31% and 25% upside, respectively), valuing REC at FY26E P/BV of 1.9x, and PFC at FY26E standalone P/BV of 1.5x and 25% holding company discount on its REC stake," Emkay said in a report.


Citing sustained double-digit loan growth and stable margins, it said improving asset quality supports robust earnings visibility for companies in the sector.

"Despite offering consistent dividend payouts and maintaining strong return ratios, we believe sector players continue to trade at a discount to their book," Emkay said.

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In the report, it cited these 3 reasons for taking an optimistic stance on PFC and REC shares:

1) With planned capex of over Rs 33 lakh crore during FY23-32 in generation, transmission, and distribution, including focus on renewables, power storage, and green hydrogen, the growth runway is long and visibility high.

2) Lessons learnt from the previous cycle (ie project gestation risk, PPA/FSA risks, and so on), a host of Central Government-driven reforms addressing the sustainability issue in the sector by attempting to resolve the burning issue of ‘who pays the bill’, continued benign competition from banks in the power space, and gradual diversification approach adopted by PFC/REC provide reasonable comfort around asset quality issues and, hence, added confidence around profitability.

3) Valuations, despite being higher than the long-term median of 0.7x, remain palatable for the growth and profitability profile, along with near clean-up of past baggage.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)