- PFC shares fell over 8% on Monday after the company reported weak earnings, including muted disbursements and soft loan growth.
- CLSA flagged moderated loan growth for both PFC and REC, driven by a run-down in the Revamped Distribution Sector Scheme (RDSS) book.
- CLSA cut FY27 profit-after-tax estimates for both PFC and REC by 2%-3% and reduced target prices.
- PFC shares traded 8.25% lower at ₹385.30, while REC shares slumped up to 8% on the same day.
- PFC's net interest income (NII) declined 4.3% from last year to ₹5,233.5 crore, while its operating profit was up 10.9% to ₹5,57.1 crore.
- PFC's loan book grew 4% year-on-year, while REC's loan book grew just 1% year-on-year.
- Asset quality remained benign for both lenders, with no significant deterioration reported during the quarter.
Shares of Power Finance Corporation (PFC) and REC Ltd. plunged up to 8% on Monday after CLSA cut their target prices due to mixed Q1 results. PFC's shares fell 8.25% to Rs 385.30, while REC dropped 6.09% to Rs 344.65.23678
CLSA noted that loan growth moderated for both companies, with PFC achieving a 4% year-on-year increase and REC only 1%. The brokerage highlighted that the smaller size of the Revamped Distribution Sector Scheme (RDSS) book is a positive, now accounting for just 3% of REC's loan book, which may mitigate the impact of the run-down on future growth.
Despite the decline in loan growth, asset quality remained benign for both lenders, with no significant deterioration reported. However, REC faced a sharp foreign exchange loss due to rupee depreciation, while PFC's net interest income (NII) fell 4.3% year-on-year to ₹5,233.5 crore.9
Following the Q1 performance, CLSA cut its FY27 profit-after-tax estimates for both companies by 2%-3%. It maintained an 'Outperform' rating on REC, lowering its target price to ₹420, and also retained the same rating for PFC, reducing its target price to ₹500, indicating a 19.3% upside from its previous close.
PFC's disbursements were down 44% year-on-year and 50% from the previous quarter, attributed to high pre-payments and seasonally weak first-quarter disbursements. The management anticipates improvement in the second half of FY27.
“CLSA trimmed FY27 profit estimates for both lenders by 2%-3%, citing moderated loan growth from the RDSS book run-down. PFC's loan book grew just 4% year-on-year, while REC's grew 1%, with REC also reporting a sharp forex loss due to rupee depreciation.”
CNBC TV18
