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Investing.com - Morgan Stanley (NYSE:MS) has initiated coverage on Power Finance Corp Ltd (NS:POWF) with an Overweight rating and a price target of INR508.00, suggesting a potential upside of 21-23% over the next year.
The research firm notes that despite a sharp rally in NBFC stocks during the current year to date, Power Finance Corp and REC have declined 24-35% in the past 12 months, compared to a 4.7% rise in the Sensex.
Morgan Stanley believes Power Finance Corp can continue to deliver low-teens loan growth and high-teens return on equity while remaining self-sustaining with a current dividend yield of 3.8-4.5% based on a 30% payout ratio.
The firm highlights that the asset quality cycle is in a benign phase, with limited expected incremental slippages and potential upside from bad loan recoveries.
At a zero growth price-to-earnings ratio of 5-6x for fiscal year 2027 estimates, Morgan Stanley views the stock as not only factoring in a discount for structural concerns but also offering compelling risk-reward in the near term, especially as loan growth and asset quality of retail NBFCs are likely to soften.
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