CLSA cut Power Finance Corp. and REC Ltd.'s target price, as it expects growth to slow down in financial year 2025, due to lower loan-growth trend. The brokerage maintained 'outperform' rating on both the companies.
Both power financiers would benefit from capital expenditure in renewable energy and thermal power infrastructure, CLSA said.
PFC
Although Power Finance Corp. reported higher net profit than what CLSA expected for October–December 2024, loan growth was below the brokerage's estimate. For the third quarter, Power Finance reported 10% loan growth. The management indicated that loan disbursal would likely increase during the fourth quarter, enabling PFC to achieve 14% loan growth in financial year 2025.
Nevertheless, loan growth in renewables remains robust at 28% on the year. Unlike the past quarter, repayment rates slowed during October–December, CLSA said.
As the growth outlook is in mid-teens compared to 20% seen in financial year 2024, CLSA lowered the target price to Rs 540 apiece from Rs 610. The current target price implied a 40.11% upside from Thursday's closing price.
Municipal waste to energy account, which makes 0.03% of the loan, slipped, making the first such in the last two years, CLSA said. Management highlighted that stressed assets like KSK Mahanadi, Shiga Energy and TRN Energy worth Rs 4,961 crore are nearing resolutions. In KSK Mahanadi, Power Finance estimated 100% recovery. Writebacks are expected in the fourth quarter of FY25.
REC
REC also reported slower-than-expected loan growth during the third quarter due to prepayments rather than disbursement slowdown, CLSA said.
The brokerage lifted REC's earning estimates for financial year 2025 and 2027 by 1–2%. However, for the near term, due to slowdown in loan growth, CLSA cut the target price to Rs 590 from Rs 680. The current target price implies a 46.11% upside from Thursday's closing price.
Power Finance Corp., REC Share Price
Power Finance Corp. and REC share prices rose 1.34% and 0.73%, respectively shortly after open. However, they erased all gains. Power Finance and REC share prices were trading 0.43% and 1.35% down, respectively.
Power Finance Corp. stock declined 11.91% in 12 months, while REC fell 16.01% in the same period.
Power Finance's relative strength index was at 44.64. REC's RSI was at 35.90.
Twelve analysts tracking REC maintain a 'buy' rating, according to Bloomberg data. The average 12-month analysts' consensus price target implies an upside of 53.4%.
Twelve analysts tracking Power Finance maintain a 'buy' rating, according to Bloomberg data. The average 12-month consensus price target implies an upside of 46.6%.
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