Motilal Oswal's Bold Call: Power Finance Corp Set for HUGE Jump to Rs 485!

Motilal Oswal has issued a research report on Power Finance Corporation (PFC), maintaining a 'BUY' recommendation and setting a target price (TP) of INR 485 based on a Sum-of-the-Parts (SoTP) valuation for September 2027. This TP is derived from a 1x multiple for PFC's standalone business and INR 151 per share for its stake in REC Limited, after accounting for a 20% hold-co discount.

In the second quarter of fiscal year 2026 (2QFY26), Power Finance Corporation reported a Profit After Tax (PAT) of INR 44.6 billion, reflecting a ~2% increase year-on-year (YoY) but falling short of analyst expectations by approximately 17%. Net Interest Income (NII) demonstrated strong performance, growing ~20% YoY to about INR 52.9 billion, which was in line with forecasts. Other operating income declined ~19% YoY to ~INR 11.8 billion, influenced by a reduction in dividend income. The company also recorded exchange losses of INR 5 billion in 2QFY26, largely attributed to fluctuations in the EUR/INR currency exchange rate. For the first half of FY26 (1HFY26), PAT saw an 11% YoY growth, and the company anticipates PAT growth of 10% YoY for the second half of FY26.

Impact
This research report, with its reaffirmation of a 'BUY' rating and a substantial price target from a leading brokerage firm, is likely to positively influence investor sentiment towards Power Finance Corporation and, by extension, REC Limited. The report's detailed financial analysis and forward-looking statements can guide investment decisions and potentially impact the stock's market performance.
Rating: 7/10

Difficult Terms:

• PAT: Profit After Tax, the net profit remaining after all expenses and taxes are deducted.
• YoY: Year-on-Year, a comparison of performance between a period and the same period in the previous year.
• INR: Indian Rupee, the currency of India.
• NII: Net Interest Income, the difference between interest income generated and interest paid by a financial institution.
• PY: Previous Year.
• PQ: Previous Quarter.
• SoTP: Sum-of-the-Parts, a valuation methodology that assesses a company by valuing its individual business units or subsidiaries separately and summing them up.
• TP: Target Price, the price level an analyst forecasts for a stock in the future.
• Hold-co discount: A reduction applied to the value of a holding company's subsidiaries when calculating the parent company's valuation, accounting for structural complexities or limitations.