Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) share price gained over 2% on Thursday after UBS initiated its coverage on these dividend stocks with a bullish view, highlighting strong growth led by shift to renewables and infrastructure financing.
UBS initiated coverage on PFC shares with a ‘Buy’ rating and a target price of ₹670 apiece. It also has a ‘Buy’ call for REC shares and a target price ₹720 apiece.
“We believe REC and PFC’s growth drivers and trajectory will be similar, with REC growing slightly ahead of PFC. REC is trading at a nearly 35% premium to the PFC standalone multiple versus 25% historically. Hence, we have a relative preference for PFC to REC,” UBS said.
The foreign brokerage firm views PFC and REC as financiers of high growth renewable power generation and infrastructure capex (3x of power capex) in India and not as traditional power capex financiers.
Nearly 20% of their total loan book is now in renewables and infrastructure, which UBS estimates 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. Changing loan mix is also altering credit quality dynamics as renewables loans are shorter tenure, smaller and carry lower risk than thermal plants, while resolution of legacy assets remains a tailwind near term. Access to long-term funds at reasonable rates due to implicit government guarantees remains a key advantage,” UBS said.
It believes both PFC and REC stocks remain in EPS upgrade cycles and expects ROE to remain robust at 18-20%.
PFC share price history
PFC share price has given stellar returns as it has grown over 42% year-to-date (YTD). PFC shares have turned multibagger as the stock is up more than 151% in the past twelve months and over 438% in three years.
REC share price history
REC share price has jumped over 51% year-to-date (YTD), while its one-year returns stand at more than 155%. In the past three years, REC shares have rallied over 470%.
At 10:55 am, PFC shares were trading 0.45% higher at ₹541.50 apiece, while REC shares were trading 0.06% higher at ₹619.00 apiece on the BSE.
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