PFC, REC Get 'Overweight' Rating From Morgan Stanley As 12% CAGR In Loan Portfolio Expected
PFC and REC should each achieve 12% estimated loan CAGRs between fiscals 2025 to 2028 and 17-19% average return of investment, the firm stated.
Morgan Stanley has initiated coverage on Power Finance Corp. and Rural Electrification Corp. with an 'overweight' rating, citing an attractive entry point for investors.
"PFC and REC should each achieve 12% estimated loan CAGRs in fiscal year 2025 to 2028 and 17-19% average return of investment," the brokerage stated.
At a fiscal 2027 estimated price-to-earnings ratio of 5-6 times for self-sustaining low-to-mid teens loan growth and a 3.8-4.5% dividend yield, the risk-reward profile is compelling, according to Morgan Stanley.
The report emphasised the role of PFC and REC in financing India's energy transformation. "India's power sector is in an investment cycle, with large, planned capex (Rs 35 lakh crore till fiscal 2032, per Power Ministry data) aimed toward generation (mainly renewable energy), transmission and distribution (e.g., smart metering), energy storage, EV charging infrastructure, etc.," Morgan Stanley noted.
PFC and REC could sustain low-to-mid-teens loan growth, supported by this capex cycle, according to the brokerage.
Morgan Stanley also pointed out that both PFC and REC have managed to maintain net interest margins in a tight band (over 3.5%), consistently growing faster than bank credit growth in the power segment. "We think these stocks out of favour over the past nine months after being popular in 2023 and 2024, screen attractive on both absolute and relative risk-reward," the report added.
The firm sees a 21-23% upside to these stocks over the next year, placing them in the top quartile of their coverage.
