In Wednesday’s trading session, shares of one of the leading PSU stocks,specialize in financing power sector projects for the Indian power sector, in focus after HDFC securities Initiates Buy Target with a 25 and 30 percent Upside Potential on it.
What Happened
JSW Energy emerged as the successful bidder in the resolution process and received approval from the Committee of Creditors (CoC) to acquire KSK Mahanadi Power under the IBC, valued at Rs. 15,985 crore.
KSK Mahanadi Power faced significant financial challenges, including a large pile-up of debt, which led it to enter insolvency proceedings after struggling to meet its financial obligations. The company’s liabilities amounted to over Rs. 32,000 crore, including dues to banks and financial creditors.
The resolution of KSK Mahanadi Power through the sale to JSW Energy benefits creditor institutions such as REC and PFC. As major creditors, REC’s dues stand at Rs. 2,727 crore, and PFC at Rs. 3,428 crore. With the acquisition by JSW Energy, both institutions are more likely to recover a portion of the outstanding dues owed by KSK Mahanadi.
Following these events ICICI securities has initiated BUY targets on these two companies and here’s what it has to say
- Shift Towards Renewables: India’s power sector is undergoing a paradigm shift towards renewable energy, leading to a projected Rs 43 lakh crore investment in generation and transmission by 2032, according to CEA estimates.
- Market Share in Power Financing: PFC and REC hold a 20% market share in financing India’s power sector, making them well-positioned to benefit from the sector’s growth.
- Stronger Asset Quality and Balance Sheets: Both companies have improved asset quality and balance sheets due to stressed asset resolutions and government initiatives supporting distribution companies.
- Renewable Growth: India’s renewable capacity has increased by 16-17 GW annually in the past three years, with the total installed capacity rising by an average of 20 GW per year.
- Future Capacity Growth: The brokerage expects India’s installed capacity to reach 900 GW by FY32, with an annual increment of 56 GW, which is 2.8 times higher than the historical average.
- Loan Growth and Profitability: ICICI Securities expects a 14% annual loan growth for PFC from FY24 to FY27, with profitability expected to improve due to reduced stress, legacy resolution, and minimal slippages in the past two years.
REC Limited, specializing in providing financial services and funding solutions for the Indian power sector, has risen up by 1.15 percent following HDFC securities initiated a target of Rs. 600 with the upside potential of 25 percent.
PFC Limited, specializing in providing financial support for power generation, transmission, and distribution projects, has risen up by 2.5 percent following HDFC securities initiated a target of Rs. 550 with the upside potential of 32 percent.
Financials
REC Limited’s revenue rose by 17.13 percent from Rs 11,701 crore to Rs 13,706 crore in Q2FY24-25. Meanwhile, Net profit rose from Rs 3,789.9 crores to Rs 4,037.72 crore during the same period.
PFC Limited’s revenue rose by 14.95 percent from Rs 22,403 crore to Rs 25,754 crore in Q2FY24-25. Meanwhile, Net profit rose from Rs 6,628.17 crores to Rs 7,214.9 crore during the same period.
Written by Sridhar J
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