ICICI Securities has issued a buy rating on Power Finance Corporation with a target price of ₹520 in its research report dated August 10, 2026. The brokerage maintains its sum-of-the-parts (SoTP) valuation approach using March 2028 estimates, applying a 1x target multiple for the PFC standalone business and ₹146 per share for PFC's stake in REC after applying a holding company discount of 20%. According to ICICI Securities, the stock is currently trading at attractive valuations with the company's standalone business valued at 1x FY27E P/BV and approximately 5x FY27 P/E. However, recent market developments show that at current prices, the stock already trades at roughly 90 times this year's earnings, pricing in a big transmission order win every single year, as noted in latest reports.
The company's first quarter FY27 profit after tax (PAT) grew approximately 5% year-on-year to ₹47.5 billion, representing a 5% beat against estimates. However, net interest income (NII) declined around 4% YoY to ₹52.3 billion, falling short of expectations by 7%. As reported by ICICI Securities, other operating income demonstrated strong growth of approximately 40% YoY to ₹2.8 billion. The company also reported an exchange gain of ₹752 million compared to an exchange loss of ₹3.1 billion in the previous quarter. However, lending margins narrowed as the company trimmed rates in a falling-rate environment, and loan growth was muted with the loan book down 2% QoQ and disbursements declining 50% QoQ, according to the latest financial data.
A significant development for Power Finance Corporation is the PFC-REC merger expected to be implemented from April 1, 2027, with a swap ratio fixed at 88 shares of PFC for every 100 shares of REC. Given that both entities operate in the same line of business, ICICI Securities does not envisage any material complexities or operational challenges, though synergies could be limited due to the similar nature of their operations. The merger will create a larger entity in the power sector financing space, with project-wise, lender-wise limits, and borrower-wise limits identified as key monitorables post-merger, as noted in the brokerage's analysis.
According to the research report, operating expenses grew approximately 26% YoY to ₹2.3 billion, which was 15% higher than Motilal Oswal's estimates. The cost-income ratio rose around 45 basis points quarter-on-quarter to approximately 4.5%. Pre-Provision Operating Profit (PPoP) grew around 11% YoY to ₹53.6 billion, meeting expectations and demonstrating operational stability. Management indicates it's balancing growth against profitability rather than chasing volume at any cost, as reported in latest market analysis.
