An analyst’s target price is a forecasted future value for a stock, reflecting the analyst’s perception of a fair market value. This projection considers the company’s past performance, as well as its future objectives and strategic plans. Conversely, a lower target price suggests the analyst’s belief that the stock is expected to decrease in value.
CLSA, the brokerage firm, expects REC to experience margin pressure due to its bond yield profile. Conversely, brokerage predicts that PFC will gain from this situation, projecting a net interest margin increase of 5-13 basis points in the calendar years 2025 and 2026 for PFC.
Here are two PSU stocks with an upside of up to 30%
Power Finance Corporation Ltd
Power Finance Corporation (PFC) is a Maharatna category. The PFC is a financial organization that specializes in power sector finance, offering financial support to power projects in India such as power generation, transmission, and distribution.
On Wednesday, Power Finance Corporation Ltd. shares closed at ₹424.15 per share, up 1.56 percent on the National Stock Exchange. The company has a market capitalization of ₹ 1,39,611 crore.
Power Finance Corporation Ltd. shares gained 95% in the last six months and 228% in a year.
The company’s revenue has increased by 20 percent yearly, from ₹ 19,639 crores in Q3 FY23 to ₹ 23,572 crores in Q3 FY24. In the same time frame, net profit has increased by 20 percent from ₹5,241 crores to ₹ 6,294 crores.
The net NPA ratio decreased from 1.19% in 9M’23 to 0.90% in 9M’24, representing a 29 basis point reduction. Additionally, 82% of the company’s loans are designated for the government sector, with the remaining 18% allocated to the private sector.
CLSA has initiated a ‘buy’ rating on Power Finance Corporation Ltd. with a target price of ₹550 per share, representing an upside potential of up to 30% from Wednesday’s close price of ₹424.15 apiece.
CLSA, the brokerage firm, believes that the company achieved favourable margins in the December quarter. However, despite this, it experienced a deceleration in growth. The firm’s net profit was positively influenced by a robust 16 percent year-on-year(YoY) increase in net interest income (NII), but was offset by elevated credit costs, according to CLSA.
The brokerage stated that the company’s asset resolution, aligning with the provided guidance, resulted in a 15-basis-point decrease in gross non-performing assets (GNPA).
Additionally, the management anticipates resolving two more projects in the upcoming months, as indicated by the brokerage. Taking these factors into consideration, the brokerage has adjusted its forecast for FY24CL growth to 15 percent, while anticipating a 17 percent growth in FY25CL due to the expected contribution from new segments.
REC Ltd
REC Limited provides and supports rural electrification projects for state power utilities, private sector project developers, central power sector utilities, and state governments.
On Wednesday, REC Ltd. shares closed at ₹469.65 per share, up 1.01 percent on the National Stock Exchange.
REC shares gained 91% in the last six months and 287% in a year. The company has a market capitalization of ₹1,23,590 crore.
The company’s revenue has increased by 23 percent yearly, from ₹9,782 crore in Q3 FY23 to ₹12,052 crore in Q3 FY24. In the same time frame, net profit has increased by 13 percent from ₹2,915 crore to ₹3,308 crore.
In Q3 FY24, the business reported a 20% YoY rise in loan books to ₹4.74 lakh billion. Asset quality improved, with net credit-impaired assets at 0.96% (compared to 1.24% YoY).
The company has a total outstanding loan composition of 90% from the private sector and 10% from the public sector in the first half of the fiscal year 2024. The company’s asset quality has improved from 3.63% in Q3 FY23 to 2.78% in Q3 FY24.
CLSA has initiated a ‘buy’ rating on REC Ltd. with a target price of ₹ 560 per share, representing an upside potential of up to 19% from Wednesday’s close price of ₹469.65 apiece.
As per CLSA, the firm is anticipated to experience enhanced asset quality in the upcoming quarter, with a sequential improvement of at least 60-70 basis points in their gross non-performing assets (NPAs) and write-backs, primarily attributed to the resolution of Lanco Amarkantak.
CLSA also predicts a growth of 5-13 basis points in their net interest margin during the calendar years 2025 and 2026.
Written by Omkar Chitnis
Disclaimer
The views and investment tips expressed by investment experts/broking houses/rating agencies on tradebrains.in are their own, and not that of the website or its management. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution while investing or trading in stocks. Dailyraven Technologies or the author are not liable for any losses caused as a result of the decision based on this article. Please consult your investment advisor before investing.
