Multibagger Stocks PFC REC: Along with investors, the market will also keep an eye on the merger of both the companies…
highlights
- Both Power Finance Corporation (PFC) and REC stocks have proven to be a source of income for investors in the long term.
- The proposed merger of the two companies is aimed at creating scale in power-sector financing.
- Brokerage firms and experts say this move alone is unlikely to impact valuations.
Around 11 am on Wednesday, February 11, PFC shares were trading in the green at Rs 415.25, while REC shares were trading in the green at Rs 355.80. REC stock, which has given more than 200 percent returns in the last 3 years, is continuously trading in the red during the last few days. At the same time, PFC shares have increased by about 15 percent in a month.
PFC-REC Merger: Big Update
The PFC board last Friday gave in-principle approval to the merger of non-banking finance company REC with itself. After the merger, PFC will remain a ‘government company’. The board’s approval for the merger of PFC and REC came after the announcement in this regard was made in the budget on Sunday, February 1. Earlier, as per the approval of the Cabinet Committee on Economic Affairs (CCEA), PFC had purchased the government’s 52.63% holding in REC Limited (REC) for Rs 14,500 crore in March 2019.
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In a way REC is now working as a subsidiary company of government company PFC. Considering the share swap at the current market price of PFC to buy the remaining stake in REC, the Centre’s holding in PFC will reduce to 42% from the current 56%. However, further details of the merger process are awaited.
The loan book of both the companies combined is more than ₹11 lakh crore. Meanwhile, brokerage UBS in its note said it believes that post-merger, the entity may get better pricing power as there is greater overlap in customer base, perhaps higher growth and the holding company discount present in the current structure will be eliminated. This may perhaps lead to further re-rating.
UBS said the swap ratio is important for REC holders and further developments will need to be monitored.
PFC Share: Brokerage expects 21 percent growth
Brokerage Motilal Oswal has said that the Government of India has announced the merger of PFC and REC. Although there is still uncertainty over the nitty-gritty of the merger, Motilal Oswal believes the combination should provide good operating synergy through efficient management of overlapping operations and stronger bargaining power with lenders.
The brokerage noted that this is also likely to reduce competition at least between PFC and REC, as the merged company will emerge as a power financier with greater scale and stability.
Motilal Oswal has given a BUY rating with a target of Rs 500, giving a 21% upside view on the stock.
REC Share: How far will the price go?
Brokerage Motilal Oswal has given a buy rating on the stock with a target of Rs 430, estimating an upside of 21% on the stock.
Motilal Oswal notes that the government proposed the REC-PFC merger to increase scale and efficiency. In the Union Budget 2026-27, the Government of India stated its intention to restructure certain public sector NBFCs to improve scale, efficiency and credit delivery as part of its ‘Developed India’ vision. As an initial step, restructuring of Power Finance Corporation (PFC) and REC was proposed.
Subsequently, the Board of Directors of PFC gave in-principle approval for the merger of PFC and REC. The purpose of the proposed restructuring is to maintain the status of a government company of the merged entity under the Companies Act, 2013 and other applicable laws.
Investors got multibagger returns
Both REC, PFC stocks have given multibagger returns to investors in the long term. In a period of 5 years, both the government shares have registered returns of more than 200 percent.
Disclaimer: This article is for informational purposes only and should not be construed as investment advice in any way. ET NOW Swadesh recommends its readers and viewers to consult their financial advisors before taking any money-related decisions.
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