Shares of Power Finance Corporation and REC fell on Thursday, extending their declines for a third consecutive trading session after Morgan Stanley downgraded both stocks and cut their price targets, citing a widening gap between their loan growth and credit growth in the power sector.
REC shares fell as much as 2.6% to Rs 328, while PFC shares declined as much as 2.45% to Rs 365.20.
Morgan Stanley downgraded both stocks to Equal-weight from Overweight. It cut its price target on PFC to Rs 410 from Rs 510 and on REC to Rs 360 from Rs 430.
The brokerage said the gap between the companies' loan growth and credit growth in the power sector had become too large to ignore. PFC and REC have seen their loan growth moderate sharply even as credit growth by banks and across the power sector has accelerated.
Power Sector Credit
“The growth disconnect has been much greater than we thought,” Morgan Stanley said in its assessment of PFC and REC.
The brokerage said the sharp divergence between the companies' loan growth and the broader credit cycle was a key concern. It also said the path to a meaningful acceleration in net interest income was not straightforward.
The slower loan growth has prompted Morgan Stanley to reassess its earnings outlook for both companies.
## Morgan Stanley cuts earnings estimates
Morgan Stanley cut its earnings estimates and price targets for both PFC and REC as part of its latest assessment.
For PFC, it downgraded the stock to Equal-weight from Overweight and lowered its price target to Rs 410 from Rs 510.
For REC, it also downgraded the stock to Equal-weight from Overweight and reduced its price target to Rs 360 from Rs 430.
The brokerage's revised view comes as both stocks remain under pressure, with PFC and REC extending their declines for a third consecutive trading session.
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