REC, PFC Share Prices: PSU Power Stocks Rally As Bernstein Gives 'BUY' Rating; 21% Potential Upside Seen

The shares of Rural Electrification Corp (REC) and Power Finance Corp (PFC) have surged up to 5% as of July 3, 2024, following Bernstein's initiation of coverage on both stocks with a bullish 'buy' rating. This endorsement by the global brokerage highlights these power financiers as top choices in the ongoing power cycle, with a strong belief that the market may be underestimating both the duration and intensity of this cycle.

Bernstein's analysis points to the notable resilience and potential of REC and PFC within the power sector. The report emphasizes that the perceived risk of non-performing assets (NPAs) for these companies is significantly lower this time around, a critical factor for investors concerned about the stability and reliability of their investments.

REC and PFC are distinguished by their superior return on equity (RoE) of over 20%, coupled with growth rates of 15%, setting them apart from their industry peers. Despite a recent rally in the market, these stocks are still trading at comparatively lower valuations within the power sector, making them attractive opportunities for investors.

PFC shares closed slightly higher at Rs 502.60 on the National Stock Exchange (NSE) in the previous session, and Bernstein has set a target price of Rs 620 per share for PFC, implying a 23% upside. On the other hand, REC shares ended 2% lower at Rs 539.40 on NSE, with a target price pegged at Rs 653 by Bernstein, suggesting a 21% upside.

Over the past year, REC has delivered returns of 224%, more than quadrupling investors' money. Similarly, PFC has provided robust returns of around 186%. These gains have been driven by positive expectations from Budget 2025 and the government's increased focus on power generation, distribution, and renewable energy initiatives.

Industry experts anticipate that the upcoming budget will allocate significant funds for power generation, distribution, and renewable energy, further bolstering the prospects for REC and PFC. Additionally, a recent report indicated that the Ministry of Finance is preparing a proposal to request the Reserve Bank of India (RBI) to provide relief to project financiers from stringent norms proposed earlier. This potential regulatory relief is expected to further strengthen the position of power financiers like REC and PFC.

Analysts also highlight that power companies and non-banking financial companies (NBFCs) like REC and PFC are currently in a strong position due to their clean balance sheets and robust fundraising capabilities. The ongoing green energy boom presents significant growth opportunities for these companies, and despite recent stock price increases, their valuations remain reasonable, offering potential gains for investors.

As of 10:30 am on Wednesday, REC shares were trading with gains of over 3%, at Rs 557.20 per share on the NSE. Meanwhile, shares of PFC were trading with gains of nearly 5%, at Rs 526.10 per share. These movements reflect the market's positive reception to Bernstein's coverage and the overall optimistic outlook for these power financiers.

The recent surge in REC and PFC shares reflects the growing confidence in the power sector and the potential for these companies to capitalize on the current market conditions. With strong financials, supportive government policies, and a favourable outlook for green energy, REC and PFC are well-positioned to continue delivering value to their investors. Bernstein's 'buy' rating and the projected upsides for both stocks further reinforce the view that these power financiers are strong opportunities.

*Inputs from Moneycontrol*