PFC, REC shares in focus after boards approve merger

Synopsis

Power Finance Corporation's board has approved an in-principle merger with REC, advancing a Union Budget proposal to restructure the two public sector NBFCs. This move aims to achieve scale, improve efficiency, and enhance credit flow to India's power and infrastructure sectors. Both companies have delivered significant multibagger returns over the past three years.

Shares of Power Finance Corporation (PFC) and REC remained in focus during Monday’s trading session after PFC’s board approved an in-principle merger with REC. The move advances the Union Budget proposal aimed at restructuring two of the country’s largest public sector non-banking financial companies (NBFCs) in the power financing space.

PFC already holds a 52.63% stake in REC, following its acquisition of the government’s holding earlier. In a regulatory filing, PFC said its board noted the government’s proposal to merge the two entities to achieve scale, improve operational efficiency, and enhance credit flow to the power sector.

Finance Minister Nirmala Sitharaman, in her Budget speech on February 1, proposed restructuring PFC and REC to strengthen public sector NBFCs. Earlier, the Cabinet Committee on Economic Affairs had cleared the transaction under which PFC acquired the government’s stake in REC, resulting in a holding–subsidary structure between the two companies.

The proposed merger, subject to statutory approvals and detailed structuring, would combine both entities into a single balance sheet, potentially creating a stronger and more efficient lender for India’s power and infrastructure sectors.

Both PFC and REC play a critical role in financing the power sector. PFC, under the administrative control of the Ministry of Power, provides funding across the power value chain, including generation, transmission, distribution, and renewable energy. REC was originally established to finance rural electrification projects, contributing significantly to India’s near-universal electricity access.

PFC and REC share performance

PFC shares ended Friday’s session 0.6% higher at Rs 417.6 on the NSE, while REC declined over 2% to close at Rs 372.6. Despite the recent movement, both stocks have delivered strong multibagger returns, creating significant wealth for investors over the past three years. During this period, PFC has surged by approximately 260%, while REC has gained around 217%.

Technical View

PFC: The 14-day RSI stands at 74.1, indicating the stock is in the overbought zone, which could lead to a short-term pullback. However, the stock is trading above all 8 key simple moving averages (SMAs), reflecting strong bullish momentum.

REC: The 14-day RSI is at 53.2, suggesting neutral momentum. The stock is trading above 6 out of 8 SMAs, indicating a mildly bullish technical structure.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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