Emkay Global has initiated coverage on Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) with “Buy” ratings, citing strong growth potential, improved asset quality, and attractive valuations.
Key highlights from Emkay’s analysis:
- Target prices and upside potential:
- PFC: Target price set at ₹600, offering a potential upside of 29% from the current market price (CMP) of ₹463.50.
- REC: Target price set at ₹650, indicating a 25% upside from the CMP of ₹522.05.
- Growth drivers:
- The planned capital expenditure of over ₹33 trillion during FY23-32 in generation, transmission, and distribution provides a long-term growth runway with high visibility.
- Improved asset quality and profitability:
- Lessons from the previous cycle, central government-driven reforms addressing sectoral sustainability, and gradual diversification by PFC and REC have significantly reduced asset quality risks.
- Both companies are expected to deliver robust profitability with projected ROE of 19% for PFC and 20% for REC during FY25-27E.
- Valuations:
- While valuations have risen (1-year forward P/BV of ~1.5x for REC and 1.14x for PFC), they remain reasonable given the companies’ growth profiles and the cleanup of legacy issues.
- Projected financials:
- PFC and REC are projected to achieve 13% and 18% AUM CAGR, respectively, over FY24-27E, underscoring strong business momentum.
Emkay’s optimistic stance is underpinned by the structural growth opportunities in the power sector, reduced asset quality concerns, and strong profitability outlook for both companies.
Disclaimer
This article is for informational purposes only and does not constitute investment advice. Readers should perform their own research or consult a financial advisor before making investment decisions.
