Morgan Stanley downgrades PFC and REC, cutting targets as shares fall

Shares of Power Finance Corporation (PFC) and REC fell up to 3% on the BSE on Thursday, after domestic brokerage firm Morgan Stanley downgraded the stocks from Overweight to Equal-Weight. The brokerage also cut its target price for PFC to Rs 410 from Rs 510, while its target for REC was lowered to Rs 360 from Rs 430.PFC and REC's loan growth has moderated sharply, while system and bank credit to the power sector have accelerated, according to Morgan Stanley.“The growth disconnect has been much greater than we thought,” the brokerage stated in its note, adding that it sees recovery from the current position to be gradual.The brokerage also cut its earnings estimates for both companies. For PFC, it lowered the target price by 20% and cut core EPS estimates by 5.5% for FY28E and 7% for FY29E. For REC, it reduced the target price by 16%, while lowering EPS estimates by 5% for FY28E and 7% for FY29E.The company reported a slight decline in revenue from operations to Rs 28,527 crore in Q1 FY27, from Rs 28,539 crore in the corresponding quarter of the previous financial year.Also Read | PFC shares tumble 5% to 4-month low after weak Q1 earnings. Why Motilal Oswal still recommends BuyAlong with the Q1 results, PFC announced an interim dividend of Rs 3.90 per share with a face value of Rs 10 each for the ongoing financial year 2027. The record date to determine the eligibility of shareholders set to receive the dividend has been fixed on August 27.REC had reported a dip of over 6% year-on-year in its consolidated net profit at Rs 4,192.76 crore in the June quarter of FY27, citing lower interest income.Also Read | REC Q1 Results: Net profit dips over 6% to Rs 4,193 crorePFC-REC MergerEarlier in July, the boards of Power Finance Corporation (PFC) and REC approved the merger scheme between the two companies, with the share-swap ratio set at 88 PFC shares for every 100 REC shares held. PFC owns a 52.63% stake in REC. The Centre owns 55.99% in PFC but does not directly own a stake in REC.Also Read | PFC-REC merger: Which stock should you buy before the mega deal creates Rs 11 lakh cr power financing giantPFC Share PriceShares of Power Finance Corporation fell 2.7% to Rs 365.80 on the BSE on Thursday. The stock has declined over 11% in the past month and 14% over the last three months. PFC shares are down over 9% so far this year.REC Share PriceShares of REC fell 2% to Rs 329.40 on the BSE on Thursday. The shares of the company have declined over 6% in the last six months and have fallen 9% in the year so far.(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

Morgan Stanley cuts PFC target to Rs 410 and REC target to Rs 360, citing a sharp moderation in loan growth and a widening gap with power-sector credit growth.