PFC, REC soar 4% on 'buy' rating from Bernstein; up to 23% upside seen in power financier stocks

Despite recent market rallies, these stocks are trading at comparatively lower valuations within the power sector, said Bernstein.

Shares of Rural Electrification Corp (REC) and Power Finance Corp (PFC) gained up to 4 percent on July 3 as Bernstein initiated coverage on both stocks with a 'buy' rating.

The brokerage highlighted both power financiers as preferred plays in the power cycle, with investors potentially underestimating both the duration and intensity of the current cycle.

Additionally, the perceived risk of non-performing assets (NPAs) is significantly lower this time around. REC and PFC are noted for their superior return on equity (RoEs) exceeding 20 percent and growth rates of 15 percent compared to their industry peers.

Despite recent market rallies, these stocks are trading at comparatively lower valuations within the power sector, said Bernstein.

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PFC shares closed marginally higher at Rs 502.60 on the National Stock Exchange (NSE) in the previous session. Bernstein has pegged the target price for the stock at Rs 620 per share, implying a 23 percent upside.

Meanwhile, REC ended 2 percent lower at Rs 539.40 on NSE and the international brokerage has pegged the target price at Rs 653, suggesting a 21 percent upside.

Both REC and PFC have had a decent run over the last couple of months, jumping around 27 percent so far in 2024. In the last year, REC has delivered multi-bagger returns of 224 percent, more than quadrupling investors' money.

PFC stock has delivered handsome returns of around 186 percent. Both counters have seen upswings on account of positive Budget 2025 expectations.

According to other experts, government allocation of money for power generation, distribution and renewable power generation, distribution is likely to be on the higher side in the upcoming Budget.

The move was also supported by a recent CNBC Awaaz report which stated that the Ministry of Finance is preparing a proposal to be sent to the RBI, asking them to provide relief to project financiers from stringent norms proposed earlier.

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Additionally, analysts believe that power companies and NBFCs like REC and PFC are currently in a strong position as they have clean balance sheets and robust fundraising capabilities.

Significant growth is likely for PFC and REC from the green energy boom, and despite recent stock price increases, their valuations remain reasonable, presenting an opportunity for potential gains, said analysts.

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