The proposed merger between Power Finance Corporation and REC is in focus. . In its Q3FY26 result updates dated 10 February 2026, Motilal Oswal retained a ‘Buy’ rating on both companies. The brokerage houses see as much as 21% upside potential for each
While Motilal Oswal analysed the performance for the quarter that ended in December of both companies separately, it repeatedly referred to the government’s restructuring plan announced in the Union Budget 2026–27.
The brokerage said the merger proposal is aimed at improving scale and efficiency.
At the same time, its analysis shows that PFC and REC are currently moving at different speeds in terms of loan growth and margin trends. Asset quality improved at both, but growth momentum was stronger at PFC.
PFC Vs REC: Key factors to watch
Here are four detailed takeaways from Motilal Oswal’s analysis.
1) Motilal Oswal on Government restructuring aims to improve scale and credit delivery
Motilal Oswal clearly pointed to the policy announcement as an important development. It stated, “In the Union Budget 2026-27, the Government of India announced its intent to restructure select public sector NBFCs to improve scale, efficiency, and credit delivery.”
The brokerage also noted that PFC’s board has granted in-principle approval for the merger. It added that the restructuring is intended to ensure that the merged entity continues to retain its status as a government company under the Companies Act, 2013.
Motilal Oswal did not quantify potential gains from the merger. However, it said the combination could lead to operating synergies by rationalising overlapping functions and improving bargaining power with lenders.
For now, the brokerage continues to value both companies on a standalone basis.
2) Motilal Oswal maintains ‘Buy’ on REC and PFC
Motilal Oswal Financial has retained its ‘Buy’ rating on Power Finance Corporation with a target price of 500. The brokerage has valued PFC’s standalone business at one time its estimated December 2027 book value and has also included the value of its stake in REC after applying a holding company discount.
For REC, the brokerage has maintained a ‘Buy’ rating with a target price of 430. This valuation is based on one time its estimated December 2027 book value per share.
Motilal Oswal expects Power Finance Corporation to deliver 11% growth in disbursements, 13% growth in advances and 8% growth in profit after tax over FY26–28. For REC, it estimates 12% growth in disbursements and loans and 9% growth in profit after tax over the same period.
The brokerage also expects REC to offer a higher dividend yield compared with PFC by FY28, based on its projections.
3) Motilal Oswal: PFC shows stronger loan growth and improving asset quality
Motilal Oswal said PFC’s December quarter performance met its expectations. Profit rose 15% compared with the same period last year, and net interest income increased at a faster pace, growing 19% year-on-year during the quarter.
The loan book expanded to Rs 7.0 lakh crore, reflecting double-digit year-on-year growth. Disbursements during the quarter rose compared with the same period last year, while repayments remained moderate relative to REC.
On margins, Motilal Oswal observed that net interest margin improved slightly on a quarter-on-quarter basis, and spreads remained broadly stable.
Asset quality improved during Q3FY26. Motilal Oswal said the share of bad loans came down on both gross and net basis compared with the previous quarter. It also noted that the company has set aside a strong buffer against these stressed loans, with provision coverage rising to 84%, and that there was almost no credit cost impact during the quarter.
4) Motilal Oswal on REC facing slower growth and margin pressure, but asset quality improves
In contrast, Motilal Oswal described REC’s December quarter as muted. It said profit after tax remained flat year-on-year at Rs 4,040 crore, which was about 7% below its estimate. Net interest income rose 3% compared with last year to Rs 5,280 crore.
REC’s loan book stood at 5.82 lakh crore, showing modest year-on-year growth and remaining largely flat sequentially. Disbursements declined compared with last year, while repayments were elevated at about 35%, limiting balance sheet expansion.
Motilal Oswal also pointed out margin moderation during the quarter. Yields declined slightly, borrowing costs increased, and spreads narrowed sequentially. This led to a fall in net interest margin on a quarter-on-quarter basis.
Despite these pressures, asset quality improved. It also mentioned recoveries from the Kaleshwaram Irrigation Project during the nine-month period.
Conclusion
Motilal Oswal has analysed PFC and REC separately but placed the proposed merger at the centre of its commentary. While both stocks carry ‘Buy’ ratings with target prices of 500 and 430, implying about 21% upside, the brokerage’s findings show that PFC currently has stronger loan growth and stable margins, while REC is dealing with elevated repayments and margin pressure even as asset quality improves.
The merger proposal, aimed at improving scale and efficiency, remains an important development to track, according to Motilal Oswal’s reports.
Disclaimer: This article provides factual analysis only and is not, and should not be construed as, an offer, solicitation, or recommendation to buy or sell securities. Investors must conduct their own independent due diligence and seek advice from a SEBI-registered financial advisor.