PFC, REC rally up to 6% as Bernstein initiates ‘outperform’ on power financiers

Shares of power financiers including Power Finance Corporation (PFC) and REC rallied up to 6 per cent in Wednesday’s trade (July 3) after global brokerage Bernstein initiated an ‘outperform’ rating on both the companies. For PFC, the brokerage has suggested a target of Rs 620, implying an upside of over 23 per cent. Similarly for REC the target is pegged at Rs 653, signifying a likely potential gain of over 21 per cent.

The foreign brokerage is of the view that investors are largely underestimating the duration & intensity of this power cycle. Further NPA risk is much lower in the current cycle. Notably, the power sector has been a major contributor to the NPA crisis in the country and the vast majority of them are accounted for by the thermal power projects (TPPs), mostly privately owned.

Nevertheless, Bernstein views these stocks as leveraged power sector plays. Furthermore, these stocks carry a better ROE or return on equity of over 20 per cent and growth of 15 per cent in comparison to other peers in the space. Also, these stocks are trading at a cheaper valuation despite the recent rally.

Shares of PFC in the last 6 months have climbed 34 per cent, while REC during the same time has surged by 32 per cent.