Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) stocks have garnered bullish ratings from global brokerage Morgan Stanley, which has assigned an ‘overweight’ outlook for both companies citing robust growth prospects. The brokerage expects the loan portfolios of both state-owned non-banking financial corporations to witness a compounded annual growth rate (CAGR) of 12% over the next few years, driven by continued investments in India’s power and infrastructure sector.
Key highlights of Morgan Stanley’s report
According to Morgan Stanley’s latest analysis:
- Loan book CAGR: Both PFC and REC are expected to grow their loan books at around 12% CAGR, supported by strong disbursements for renewable energy, transmission, and distribution projects.
- Attractive valuations: The stocks are trading at attractive valuations with favourable risk-reward given their stable asset quality and government-backed profiles.
- Healthy earnings outlook: Net interest margins (NIMs) are projected to remain stable due to consistent spreads, while incremental provisioning requirements remain low.
- Policy tailwinds: Reforms in the power sector, including initiatives to reduce discom losses and upgrade transmission infrastructure, will continue to fuel loan demand.
Why PFC and REC are gaining attention
| Factor | Details |
|---|---|
| Strong fundamentals | Both companies maintain strong capital adequacy ratios and high provisioning buffers. |
| Stable asset quality | NPA levels have been controlled despite sectoral stress, aided by government payment guarantees. |
| Favourable macro environment | The government’s focus on renewables, grid expansion, and rural electrification is driving robust credit demand. |
| Attractive dividend yields | PFC and REC offer dividend yields of 5-6%, making them preferred stocks among yield-seeking investors. |
Recent stock performance
Over the past year, both PFC and REC stocks have outperformed broader market indices, driven by rising investor confidence in the infrastructure financing theme:
| Company | Stock Performance (1 Year) | Current Market Cap (Approx) |
|---|---|---|
| PFC | +68% | ₹1.15 lakh crore |
| REC | +75% | ₹1.07 lakh crore |
Loan book growth and disbursement outlook
The government’s push for energy transition and electrification of remote regions is expected to significantly drive disbursements. Both companies are targeting higher renewable energy exposure as part of their green finance strategies.
| Metric | PFC FY25E | REC FY25E |
|---|---|---|
| Loan Book CAGR (3 yrs) | 12% | 12% |
| Disbursements | ₹1.4 lakh crore | ₹1.3 lakh crore |
| NIM (%) | 3.3 | 3.5 |
| Gross NPA (%) | 4.8 | 4.5 |
Analyst view on risks
While the overall outlook is positive, Morgan Stanley flagged some key risks:
- Delays in discom reforms could impact repayments and credit growth.
- Interest rate volatility might affect spreads and profitability.
- Policy uncertainties if changes in government priorities occur post-election cycles.
Management commentary
Both PFC and REC management have reiterated their focus on:
- Expanding renewable energy financing portfolio.
- Supporting the government’s green hydrogen, solar park, and storage projects.
- Strengthening asset quality through tighter monitoring of stressed accounts.
Speaking at recent investor calls, PFC’s Chairman Parminder Chopra and REC CMD Vivek Kumar Dewangan emphasised their commitment to maintaining capital adequacy and profitability while supporting India’s $1.4 trillion National Infrastructure Pipeline targets.
Sectoral context: Power financing landscape
The Indian power sector is undergoing a strategic shift with large-scale renewable projects and transmission upgrades. This has led to a surge in credit demand from public and private players alike.
| Power Sector Financing Key Trends | |
|---|---|
| Renewable energy loans share | Rising steadily to cross 30% by FY27 |
| Discom reform-linked funding | Large disbursements to modernise distribution infrastructure |
| Private sector participation | Growing demand for long-tenor loans for solar, wind, battery storage projects |
Brokerage recommendations and targets
| Brokerage | Recommendation | Target Price (12M) |
|---|---|---|
| Morgan Stanley | Overweight | PFC: ₹520, REC: ₹500 |
| Motilal Oswal | Buy | PFC: ₹540, REC: ₹525 |
| ICICI Securities | Buy | PFC: ₹515, REC: ₹510 |
Investor takeaway
Both PFC and REC remain critical pillars in India’s infrastructure growth story, with strong earnings visibility, policy tailwinds, and healthy dividend payouts. Market experts suggest staggered accumulation on dips to benefit from potential rerating as the government accelerates power sector reforms.
Disclaimer
This article is for informational purposes only and does not constitute investment advice. Readers are advised to consult certified financial advisors before making any investment decisions based on brokerage recommendations.
