REC, PFC Power Ahead As Emkay Initiates Coverage On Public Sector Financiers With Buy

Emkay Global has initiated coverage on public sector power financiers, Power Finance Corp. and REC Ltd., recommending a 'buy' on both stocks. The brokerage's positive stance is built on the robust growth potential of India's power sector, improved asset quality, and attractive valuations.

Emkay has a target price of Rs 600 on PFC, implying a 31% potential upside. It has a target price of Rs 650 on REC, implying a potential upside again of 25%.

India's National Electricity Plan estimates Rs 33 trillion in capex during fiscals 2023 to 2032, across generation, transmission, and distribution, with a focus on renewables, power storage, and green hydrogen. This includes installing around 1,000GW of capacity to meet the country's peak demand of 458GW — double the current level, as per the report.

Both PFC and REC are poised to benefit from debt-funding opportunities arising from their sector expertise, regulatory advantages, and central roles in financing India's energy transition, says Emkay.

PFC and REC have made significant progress in reducing non-performing assets, aided by acquisitions of power plants by larger players. Government reforms have strengthened financial health and improved payment discipline. Legacy dues in the sector dropped from Rs 1.39 trillion in June 2022 to Rs 246.8 billion by Nov. 2024, with no defaults reported on installment payments. These structural tailwinds provide confidence in the sustainability of growth and profitability for both companies, as per the report.

Despite trading at higher valuations compared to their historical medians, both PFC and REC remain attractively priced given their growth potential and profitability. REC is valued at 1.9 times the price to book value of fiscal 2026, and PFC is valued at 1.5 times the same.

India's power sector is entering a controlled upcycle, driven by strong capex, policy reforms, and an increasing share of renewables, believes the brokerage. Emkay projects 13% and 18% AUM CAGRs for PFC and REC over the next two fiscals respectively, alongside 19% and 20% returns.

As of 12:28 p.m., PFC shares were trading 2.01% higher at Rs 468.60 per share, and REC shares were trading 3.10% higher at Rs 534.50 as compared to the benchmark NSE Nifty 50, which was trading at a 0.54% decline.