Motilal Oswal has maintained a ‘BUY’ rating on Power Finance Corporation (PFC) with a Rs 500 target, despite cutting future earnings estimates. PFC shares faced selling pressure following the recent first-quarter results, which highlighted concerns regarding loan growth and margin contraction. The company also announced an interim dividend of Rs 3.90 per share.
Shares of Power Finance Corporation (PFC) experienced downward pressure in recent trading sessions, even as brokerage firm Motilal Oswal reiterated its optimistic outlook on the stock. While the brokerage maintained its 'BUY' rating and kept the target price at Rs 500, it also reduced its earnings per share (EPS) estimates for the company for FY27 and FY28 by approximately 2% to 5%. This move reflects a cautious approach to the company's near-term profitability.
The market’s reaction follows the release of PFC’s first-quarter financial results for FY27 on August 7, 2026. The company reported a consolidated net profit of Rs 7,012 crore, a modest year-on-year growth of about 2.1%. Despite the profit increase, investor sentiment has been weighed down by challenges in key areas, including slower-than-expected loan growth, margin contraction, and pressure on lending yields in a shifting interest rate environment.
Analysts at Motilal Oswal have flagged that the power financing sector is dealing with structural issues, such as borrower prepayments, which have hindered loan book expansion. As interest rates fluctuate, the company’s ability to maintain high lending margins faces ongoing scrutiny. Consequently, while the brokerage sees long-term value, the short-term outlook has been adjusted to account for these operational pressures.
Beyond the earnings report, PFC has announced an interim dividend of Rs 3.90 per share for the current financial year. Investors who hold the stock as of the record date, which is set for August 27, 2026, will be eligible for this payout. This dividend announcement comes alongside plans for a significant corporate restructuring, specifically the approved draft merger scheme for the absorption of REC Limited into PFC, with an expected effective date of April 1, 2027.
Looking ahead, investors may monitor several factors that could influence the stock's performance. The integration process involving the REC merger will be a key event to track, as it carries execution risks. Additionally, the company’s ability to manage its loan book growth and protect its margins against potential currency fluctuations—particularly regarding unhedged Euro exposure—will remain important. The market will also look for clarity on whether loan growth stabilizes in the coming quarters to support the brokerage’s long-term valuation targets.