Buy Power Finance Corporation, target price Rs 560: Motilal Oswal Financial Services

Motilal Oswal Financial Services has a buy call on Power Finance Corporation with a target price of Rs 560. The current market price of PFC is Rs 467.45. Power Finance Corporation, incorporated in 1986, is a Large Cap company with a market cap of Rs 153289.73 crore, operating in Term Lending Institutions sector.

PFC's key products/revenue segments include Interest, Dividend and Fees & Commission Income for the year ending 31-Mar-2023.



Financials
For the quarter ended 30-06-2024, the company has reported a Consolidated Total Income of Rs 24736.68 crore, up 2.32% from last quarter Total Income of Rs 24176.34 crore and up 17.79% from last year same quarter Total Income of Rs 21001.44 crore. The company has reported net profit after tax of Rs 7182.06 crore in latest quarter.

Investment Rationale
Power Finance Corporation (standalone) trades at 1x FY26E P/BV and 5x FY26 P/E, and Motilal Oswal Financial Services believes that the risk-reward is attractive considering good visibility on loan growth, earnings growth, stressed asset resolutions, and healthy return ratios. The brokerage reiterates its BUY rating with an SoTP (Sep?26E)-based target price of Rs 560 (based on 1.2x target multiple for the PFC standalone business and Rs 211/ share for PFC?s stake in REC after a hold-co discount of 20%).
Key risks: 1) rise in exposure to private infrastructure projects as these loans fall outside PFC?s core expertise of lending to power projects; 2) increase in exposure to power projects without PPAs, 3) compression in spreads and margins due to aggressive competitive landscape.

Promoter/FII Holdings
Promoters held 55.99 per cent stake in the company as of 30-Sep-2024, while FIIs owned 17.74 per cent, DIIs 17.35 per cent.