Market participants keenly watch brokerage upgrades or downgrades, which often signal changing market dynamics. Stocks are also quick to react to brokers’ reports, and if the report is optimistic, it acts as a booster shot for the company.
As such, two PSU stocks, Rural Electrification Corporation (REC) and Power Finance Corporation (PFC), have been upgraded by two global brokerage giants, UBS and CLSA. This shows growing optimism in the company, hinting at improving fundamentals and potential upside, making these stocks worth watching.
Let’s break down what’s driving the optimism.
Top 5 high dividend yield PSU stocks that could outperform in 2025 #1 Power Finance Corporation
PFC is a non-banking financial company owned by the Government of India. It has the highly coveted Maharatna status and is India’s highest profit-making NBFC.
The company provides credit to power sector companies and funds projects in power generation, transmission, distribution, and renewable energy. Its customers include electrical equipment manufacturers, and central and state power utility companies.
The company’s share price has seen a big re-rating over the last five years owing to its strong financial performance.
Its total income grew at a CAGR of 9.8% to ₹460 billion in FY24, while profit rose 15.6% to ₹143 billion.
This robust growth was fuelled by strong loan disbursements, which grew at a CAGR of 8.9% during this FY20-FY24 to ₹4.8 trillion in FY24, led by strong power financing demand. The loan book comprises 81% of loans from the government sector and 19% from the private sector.
On the asset-quality front, its net non-performing assets (NNPA) have declined to 0.85% from 3.8% in FY20. Improvements in power distribution companies ‘ financial position and the increasing share of loans secured by government guarantees helped PFC reduce its NPAs.
Now, let us discuss why these brokers are bullish on PFC.
UBS expects PFC to be a major beneficiary of India’s energy transition financing theme. It said India aims to achieve 50% of installed capacity from renewables by FY30, with a total non-fossil fuel capacity of 500 GW.
This requires an estimated total power-related capex CAGR of 11% during FY24-30 to ₹5 trillion annually from the current ₹3 trillion. Most of the capex will go into upgrading transmission,
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