Shares of Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) gained over 2% on Thursday following the initiation of coverage by UBS. The foreign brokerage firm has a bullish view on these dividend stocks, citing strong growth prospects driven by the shift towards renewable energy and infrastructure financing. UBS Initiates Coverage with ‘Buy’ Rating UBS has initiated coverage on PFC with a ‘Buy’ rating and a target price of ₹670 per share. Similarly, REC also receives a ‘Buy’ recommendation with a target price of Rs 720 per share. UBS notes that while both REC and PFC share similar growth drivers and trajectories, REC is expected to grow slightly faster. Also ReadRIL’s 47th AGM today: A look at how the stock performed in last one year However, REC is currently trading at a nearly 35% premium to PFC’s standalone multiple, compared to a historical premium of 25%. As a result, UBS has a relative preference for PFC over REC. What's UBS Outlook for EPS and ROE? UBS anticipates that both PFC and REC stocks will continue to experience earnings per share (EPS) upgrades and expects return on equity (ROE) to remain strong at 18-20%. Key Financiers of Renewable Energy and Infrastructure UBS views PFC and REC as key financiers of high-growth renewable power generation and infrastructure capital expenditures in India, rather than traditional power capital expenditure financiers. Approximately 20% of their total loan books are now allocated to renewables and infrastructure, with UBS estimating this figure could rise to around 40% by FY29 as India aims to double its renewable energy capacity over the next five years. Supportive Government Schemes and Improved Credit Quality The growth of PFC and REC is expected to be supported by government distribution schemes, which offer visibility for early to mid-teens loan growth in the sector. The changing loan mix is also improving credit quality dynamics, as renewable loans tend to be shorter-term, smaller, and carry lower risk compared to thermal power plants. Also ReadIndiGo skids 2% as shares worth Rs 11,000 cr changes hands via block deal The resolution of legacy assets is anticipated to be a near-term tailwind, while access to long-term funds at reasonable rates due to implicit government guarantees remains a significant advantage. PFC Share Performance PFC shares have delivered exceptional returns, with a growth of over 42% year-to-date (YTD). The stock has surged more than 151% over the past year and has gained over 438% in the last three years. REC Share Performance REC shares have also performed well, rising over 51% YTD. Over the past year, the stock has increased by more than 155%, and in the last three years, REC shares have rallied over 470%.
