Regulatory changes, divestment overhang to weigh on REC, PFC

Written by fe Bureau | Mumbai | Updated: Sep 3 2014, 07:53am hrs
A day after the government notified its plan to sell 5% stake in power finance companies Rural Electrification Corporation (REC) and Power Finance Corporation (PFC), the stocks of both the companies fell 0.75% to 2.5% on Tuesday. Analysts, however, feel the power finance companies are likely to see the downward pressure.

The REC stocks fell 2.47% or Rs 6.90 to end at Rs 272.10 apiece on Tuesday and PFC declined 0.76% or Rs 2 to settle at 260.35 a share after the government floated tender to appoint investment bankers for stake sale in the two state-owned entities as part of the FY15 disinvestment programme.

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In contrast, Nifty rose 0.7% to a new record of 8,083 points and Sensex rose 0.6%, surpassing 27,000-points mark. The CNX Finance index ended up with 0.7% gains on Tuesday. REC has declined about 30% from its three-and-a-half year high of Rs 383.35 on BSE in July 2014, while PFC has lost close to 25% from its three-and-a-half year high of Rs 344.20.

The department of disinvestment (DoD) on Monday had notified its plan to sell 5% stake in each of the state-owned companies which will roughly fetch Rs 3,050 crore at current market rates. The government plans to sell 4.93 crore shares of the 64.81 crore shares (65.64%) its owns in REC. The Centre will sell 6.6 crore shares of the total 96.09 crore shares (72.8%) in PFC, the DoD notified on its website.

DoD plans to appoint three bankers and has marked September 22 as the last date for submitting bids.

Analysts said disinvestment overhang along with guidelines for long-term infrastructure lending by RBI will keep the stocks under pressure for the next two-three months.

HDFC, LIC Housing Finance, PFC and REC appear to be the most adversely exposed to these regulatory changes, said Pankaj Agarwal, senior analyst, Ambit Capital.

The Indian arm of Portuguese financial group Espirito Santo downgraded REC and PFC to 'sell' and 'neutral' ratings, respectively, in July this year stating further re-rating needs to be backed by an improving fundamental story.

A 200% surge in share price since September 2013 has meant that PFC and REC are now trading at their historical mean valuation, said Santosh Singh, head India research, Espirito Santo Securities.