On Wednesday, ICICI Securities began coverage on Power Finance Corporation (NS:PWFC) Limited (POWF:IN) with a Buy rating and a price target of INR 550.00. The firm sees the company as a prominent player in India's power financing sector, particularly in the renewable energy space.
Power Finance Corporation's outstanding renewables book stands at INR 643 billion, growing at a compound annual growth rate (CAGR) of 25% since the fiscal year 2022. This trajectory positions it as the largest lender in the field.
ICICI Securities projects a continued growth for Power Finance Corporation, with an anticipated asset under management (AUM) CAGR of approximately 14% from fiscal year 2024 to 2027. The company's effective management of stressed assets since 2019, with around 55% resolution and a recovery rate of over 60%, has strengthened its balance sheet. Consequently, this has led to provision write-backs and improved profitability metrics.
The analyst's positive outlook is also based on the strategic moves Power Finance Corporation has made, including its stake purchase in REC Limited. The valuation of INR 550 per share is derived from a sum-of-the-parts (SoTP) method. In this valuation, Power Finance Corporation's standalone value is pegged at 1.3 times its expected book value for the fiscal year 2026, after adjustments for the REC stake purchase, and a 25% holding company discount is applied for the REC stake.
Power Finance Corporation's role in financing India's burgeoning renewable energy sector is highlighted as a key driver for its growth. The company's large and growing renewables book indicates a clear focus on this area, which is expected to be a significant growth driver in the coming years.
The initiation of coverage by ICICI Securities with a Buy rating suggests confidence in Power Finance Corporation's future performance and its strategic positioning within the renewable energy financing industry. The price target of INR 550 reflects this optimism and the firm's analysis of the company's financial prospects.
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