PSU stocks investment can be a potential upside up to 32%
PSU stocks: During Wednesday’s trading session, shares of JSW Energy, a leading PSU stock specializing in financing power sector projects in India, were in focus after HDFC Securities initiated a Buy Target with a 25-30% Upside Potential.
JSW Energy emerged as the successful bidder in the resolution process and received approval from the Committee of Creditors (CoC) to acquire KSK Mahanadi Power under the Insolvency and Bankruptcy Code (IBC), valued at Rs. 15,985 crore.
KSK Mahanadi Power faced significant financial challenges, including a large pile-up of debt, which led it to enter insolvency proceedings after struggling to meet its financial obligations. The company’s liabilities amounted to over Rs. 32,000 crore, including dues to banks and financial creditors.
The resolution of KSK Mahanadi Power through its sale to JSW Energy is advantageous for creditor institutions such as REC and PFC. REC, a major creditor, is owed Rs. 2,727 crore, while PFC is owed Rs. 3,428 crore. The acquisition by JSW Energy increases the likelihood of both institutions recovering a portion of the outstanding dues owed by KSK Mahanadi.
In light of these developments, ICICI Securities has initiated BUY targets on REC and PFC. Here are the key points highlighted by the brokerage:
1. Shift Towards Renewables: India’s power sector is experiencing a significant shift towards renewable energy, with an estimated investment of Rs. 43 lakh crore in generation and transmission by 2032, according to CEA estimates.
2. Market Share in Power Financing: PFC and REC collectively hold a 20% market share in financing India’s power sector, positioning them well to capitalize on the sector’s growth.
3. Stronger Asset Quality and Balance Sheets: Both companies have strengthened their asset quality and balance sheets through the resolution of stressed assets and government initiatives supporting distribution companies.
4. Renewable Growth: India’s renewable capacity has been increasing by 16-17 GW annually over the past three years, with the total installed capacity growing by an average of 20 GW per year.
5. Future Capacity Growth: ICICI Securities projects India’s installed capacity to reach 900 GW by FY32, with an annual increment of 56 GW, significantly higher than the historical average.
6. Loan Growth and Profitability: The brokerage anticipates a 14% annual loan growth for PFC from FY24 to FY27, with improved profitability expected due to reduced stress, successful resolution of legacy issues, and minimal slippages in the past two years.
Overall, the sale of KSK Mahanadi Power to JSW Energy has positive implications for REC and PFC, aligning them with the growth trajectory of India’s power
In the second quarter of the fiscal year 2024-2025, PFC Limited experienced a significant increase in revenue, with a growth of 14.95% from Rs 22,403 crore to Rs 25,754 crore. Additionally, the company saw a rise in net profit from Rs 6,628.17 crores to Rs 7,214.9 crore during the same period. This demonstrates PFC Limited’s strong financial performance and growth trajectory in the current market conditions.
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Disclaimer: This blog post is for informational purposes only and should not be considered financial advice. Investors should conduct thorough research and consult with a qualified financial advisor before making any investment decisions.