Why Emkay Global Says PFC has an Upside of 60%

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Why Emkay Global Says PFC has an Upside of 60%

By Aditya Raghunath

Investing.com -- Power Finance Corporation Ltd (NS: PWFC ) is one of the safest stocks on the indices with low downside risks. It is engaged in infrastructure lending and has a healthy loan book. Its NPA (non-performing assets is at just 2% and its net NPA ratio fell to 1.80% in Q1 FY22 from 3.15% in Q1 FY21 due to the resolution of stressed assets.

Brokerage firm Emkay Global has a buy rating on the stock with a target price of Rs 220, an upside of over 60% from its September 15 closing price of Rs 137.45.

Its report on the company said, “We are valuing PFC using sum-of-the-parts (SOTP) – standalone. PFC is valued by discounting profits in excess of RoE, and we add the value of 52.6% stake in REC at current market cap, after applying a 30% hold-co discount. We continue to like the company based on improving asset-quality trends and attractive risk-reward. We maintain our Buy rating and OW stance in EAP and roll forward to Sept’22E with a revised TP of Rs 220.”

It added, “Yields are re-prized at lower rates from Apr’21 to improve competitiveness among lenders. Hedging of ~86% of forex loans (maturing up to 5 years) also provides comfort over volatile forex losses. Aatmanirbhar plans for SEB may support near-term disbursements; however, finding new growth avenues - amid weak thermal power additions - is a necessity.”

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