On Friday, Emkay Global began coverage on shares of Power Finance Corp Ltd (POWF:IN) with a Buy rating and set a price target of INR600.00.
The research firm's analysts highlighted the company's strong position to capitalize on the growing financing needs of India's power sector, which is expected to see significant capital expenditure (capex) in the near future.
Power Finance Corporation (NS:PWFC), a leading financial institution in India's power sector, is anticipated to benefit from the country's macroeconomic tailwinds and the government's increased focus on power reforms.
With a substantial capex planned in the power sector, along with heightened infrastructure spending, Power Finance is looking at a financing opportunity that could surpass INR20 billion by the fiscal year ending in March 2027 (FY27E). This scenario suggests an annual growth rate of about 13.2% for the company over the next three years.
The analysts from Emkay Global also noted that while the company's focus on renewable energy (RE) and diversification in infrastructure lending might pressure overall yields, its access to long-term funding at reasonable rates should help maintain stable margins. This stability is expected to be supported by implicit government guarantees and the anticipation of the interest rate cycle reaching its peak.
Furthermore, the firm's asset quality is projected to improve, with better recoveries from legacy assets and lower credit costs, as most loans are backed by government guarantees. This improvement is expected to lead to minimal loan slippages. Emkay Global forecasts Power Finance's Assets Under Management (AUM) to grow at a compound annual growth rate (CAGR) of approximately 13.2% from FY24 to FY27E, reaching nearly INR699 trillion.
In terms of profitability, the analysts predict that Power Finance will maintain strong return on assets (RoA) and return on equity (RoE) figures, approximately 3% and 19%, respectively, over FY25-27E. These strong performance metrics are anticipated to be driven by the combined factors of a robust lending environment and the company's strategic positioning.
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