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PSU Stocks to buy now for an upside potential of up to 30%; Are you holding any?

by Trade Brains | January 3, 2025 3:01 pm

The outlook for India’s power industry in 2025 is promising, with a projected electricity generation target of 1.90 trillion units, reflecting a 9.3 percent growth from FY24.

The renewable sector, particularly solar and wind, is expected to expand significantly, contributing to the goal of achieving 500 GW of non-fossil fuel capacity by 2030. Challenges include grid integration and investment needs. These PSU companies might benefit from this power demand and can hold on to the opportunity by financing. 

With a market capitalization of Rs 1,40,811.65 crore, the shares of REC Ltd touched a day’s high of Rs. 536.90 which is 3.4 percent higher than the previous closing price of Rs. 519.10 apiece. The stock reiterated to Rs. 534.75 from the day’s high. 

Another PSU with a market capitalization of Rs 1,54,725.27 crore, the shares of Power Finance Corporation Ltd touched a day’s high of Rs. 472.80 which is 2.92 percent higher than the previous closing price of Rs. 459.35 apiece. The stock reiterated to Rs. 468.85 from the day’s high. 

Brokerage Recommendation

Emkay, one of the reputed brokerages firm, gave a ‘Buy’ call on both the stocks with a target price of Rs. 650 apiece for REC with a potential upside of 25 percent from Rs. 518 and a target price of Rs. 600 apiece for PFC with a potential upside of 31 percent from Rs. 459 apiece. 

Brokerage rational

As per Emkay, they remain optimistic about REC and PFC, while highlighting a controlled upcycle in power capital expenditure (capex) and lending. They point to key factors such as planned capex exceeding Rs. 33 lakh crore during FY23-32 for Generation, Transmission, and Distribution while ensuring strong growth and high visibility. 

They also note the lessons learned from the previous cycle which includes risks related to project gestation and PPA/FSA, alongside government-driven reforms that address sustainability and asset quality concerns, boosting confidence in profitability. Despite higher valuations compared to long-term medians, the brokerage believes REC and PFC’s growth, profitability, and resolution of past issues make these valuations reasonable. 

Emkay expects double-digit loan growth, stable margins, and improving asset quality while improving earnings visibility which is driven by strong credit demand, write-backs, and low net credit costs.

Also read…

Will Nifty 50 go back to 22,000; What can you expect in 2025?

Financial performance

The REC’s net interest income surged 22.95 percent, increasing from Rs 4,049.62 crore in Q2FY24 to Rs 4,979.21 crore in Q2FY25. However, net profit increased by 6.53 percent from Rs 3,789.90 crore to Rs 4,037.72 crore in the same period. 

The PFC’s net interest income surged 20.68 percent, increasing from Rs 7,782 crore in Q2FY24 to Rs 9,392 crore in Q2FY25. However, net profit increased by 8.85 percent from Rs 6,628.17 crore to Rs 7,214.90 crore in the same period. 

Company profile

1. REC 

REC Limited, formerly known as Rural Electrification Corporation, is a public sector undertaking under India’s Ministry of Power. It finances power sector projects, including generation, transmission, and distribution, as well as non-power infrastructure like roads and airports. REC provides long-term loans and consultancy services, primarily to state utilities and private developers, promoting sustainable energy solutions across the country. 

2. PFC 

Power Finance Corporation (PFC) is a public sector financial institution established in 1986, primarily focused on financing the Indian power sector. It provides project term loans, lease financing, and consultancy services for power generation, transmission, and distribution projects. PFC is the largest lender in this sector, supporting around 23% of India’s installed power capacity. 

Written by Santhosh S

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.

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