Bernstein has a price target of ₹653 on REC and a target of ₹620 on PFC, implying a potential upside of 21% and 23% respectively from Tuesday’s closing levels.
Both REC and PFC fell over 20% on June 4, the day of the Lok Sabha Election results and are yet to recover those losses. Both had made record high levels a day before on June 3. Both the stocks were the top performers on the Nifty PSE index in 2023, gaining over 200% each.
Bernstein wrote in its note that both REC and PFC, forgotten by investors for over a decade, now have a market capitalisation ranging between $15 billion to $20 billion and are witnessing volumes of nearly $125 million. Yet, both these stocks trade between 8 times to 10 times trailing price-to-earnings.
The brokerage said that there are three kinds of investors in this world – those who love both REC and PFC, those who wonder why they even exist and the third being those who have never heard of these stocks.
Investors on the street are “underestimating the duration and intensity of this cycle,” Bernstein wrote in its note, adding that while 100 GW generation capacity was added in the last six years, it expects an addition of over 300 GW in the next six years.
Bernstein also expects power demand to continue to surprise on the upside. The brokerage also expects the NPA risks to be much lower this cycle and the reversal in provisions to continue in the current financial year as well.
On the valuation front, both REC and PFC have better Return on Equity (RoE) of over 20% compared to its power peers and are still trading cheaper than all of them, as per Bernstein.
PFC shares currently trade at a financial year 2025 price-to-earnings multiple of 6.7 times, while REC trades at a multiple of 8.5x.
Shares of both REC and PFC are down 10% in the last on month and are still away from their June 3 record high levels.
