Emkay Global Financial Assigns Rs 500 Price Target to Power Finance Corporation

Power Finance Corporation Sees Soft Q4 Amid Strong Profitability

Emkay Global Financial's research report on Power Finance Corporation (PFC) highlights a mixed bag of results for the fourth quarter of the fiscal year. While the loan book grew 6.8% year-over-year (YoY), the management attributed the soft growth to high prepayments and resolution in stressed assets. In contrast, PFC delivered strong profitability led by higher recoveries and provision writeback.

The company's margins in the quarter moderated slightly due to rising competition and improving DISCOM ratings, while the cost of funds (CoF) inched up on a combination of forex volatility and lagged liability repricing. Despite this, the management guides for spreads at 2.4-2.5% in fiscal year 2027.

Key Guidance and Outlook

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Looking ahead, the management has guided for a 10% growth in fiscal year 2027, as it expects prepayments to moderate as the rate-cut cycle has paused and disbursement share of short-term schemes like the Rural Broadband and Fibre Programme (RBPF) will reduce. The proposed PFC-REC restructuring is targeted to be completed by the end of fiscal year 2027, subject to requisite regulatory approvals.

Estimate Revisions and Recommendation

Factoring in the fourth quarter performance and management commentary, Emkay Global Financial has trimmed its growth and margin estimates, resulting in a 4-5% cut in fiscal year 2027-28E earnings per share (EPS). Despite this, the company still expects PFC to deliver a 16-17% return on equity (RoE). The research firm maintains a Buy recommendation and raises its March 2027 estimated target price (TP) by 11% to Rs500 from Rs450.

Estimated Impact of Revised Estimates on EPS

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Note: The estimated target price of REC is Rs440, and the holdco discount is 25%.