Motilal Oswal has initiated coverage on two major power financing companies, Power Finance Corporation (PFC) and REC Limited, with buy ratings. The target prices set are ₹560 for PFC and ₹630 for REC. Both companies are seen as key players in India’s energy boom, with a massive investment opportunity of ₹42 trillion driven by expected additions in power generation capacity.
Key Insights:
- India is projected to add around 250 GW of new power generation capacity.
- Both PFC and REC are set to benefit from a revival in capital expenditure (capex) in the power sector.
- The expected return on assets (RoA) is 3.0% for PFC and 2.6% for REC, with expected returns on equity (RoE) of 19% for PFC and 21% for REC.
- Dividend yields are anticipated at 3.8% for PFC and 4.1% for REC by FY26E.
Motilal Oswal believes the power sector is in an upcycle, with no significant risks foreseen in the next two years regarding stress pool additions.
