Shares of Power Finance Corp. and Rural Electrification Corp. gained after Morgan Stanley initiated coverage with an 'overweight' rating. PFC's share price increased by nearly 3%, while REC's share price rose by 2.58%.
Morgan Stanley's report highlighted that both PFC and REC are expected to achieve an estimated 12% compound annual growth rate in loans from fiscals 2025 to 2028, with an average return on investment of 17-19%.
The brokerage firm also noted that the risk-reward profile was attractive, with a projected price-to-earnings ratio of 5-6 times for fiscal 2027, supporting sustainable low-to-mid teens loan growth and a dividend yield of 3.8-4.5%.
PFC stock pared gains to trade 1.80% higher at Rs 425.25 and REC share price pared gains to trade 1.47% up at Rs 397.30.
The report underscored the critical role of PFC and REC in financing India's energy sector transformation. According to Morgan Stanley, India's power sector is undergoing a significant investment cycle, with planned capital expenditures of Rs 35 lakh crore until fiscal 2032. These investments are aimed at enhancing generation capacity, particularly in renewable energy, as well as improving transmission and distribution infrastructure, energy storage, and EV charging infrastructure.
"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.
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