PFC, REC shares up 3% after UBS initiates coverage on the 2 PSU stocks
REC rallied 2% to Rs 552.35 and 3% to Rs 636.15, respectively, as global brokerage UBS initiated coverage on the stocks, viewing them as key financiers for high-growth renewable power generation and infrastructure capex.
UBS has given both stocks a buy rating, with a target price of Rs 670 for PFC and Rs 720 for REC.
“Nearly 20% of their total loan book is now in renewables and infrastructure, which we estimate could reach around 40% by FY29, as India doubles renewables capacity over the next five years. Growth would be supplemented by government distribution schemes which provide visibility for early to mid-teens loan growth in the sector,” said UBS in its report.
UBS estimates a total capex of over Rs 4 lakh crore annually in the power sector, Rs 1 lakh crore from renewables generation and Rs 1.5 lakh crore from transmission and distribution (T&D). In the near term, ongoing distribution schemes such as the revamped distribution sector scheme should ensure early to mid-teens loan growth for both.
Legacy NPA resolution has helped PFC and REC's profitability in the past two to three years. PFC and REC have combined Rs 30,000 crore of gross NPA (70%+ provisioning) and it is estimated that nearly Rs 3,000-4,000 crore of write-backs are likely in FY25-26, as buyer interest in stressed assets has increased.
The analysts at UBS also believe that a stress similar to the last cycle is unlikely as the renewables dynamics differ from thermal, distribution companies' operating metrics and payment discipline have improved
