PFC / REC - Declining rates cushion business risk - Kotak

PFC/REC reported strong earnings growth in 4QFY13 on the back of high loan growth and margins. PFC/REC's proposal to create standard asset provisions (25 bps by FY2015) is positive given the overhang of large (12%) private sector exposure. Declining interest rate environment will pose upside risks to our NIM estimates, thereby providing a cushion for NPL risks.

We continue to factor in gross NPLs of 2.5% for PFC/REC in our adjusted book value calculation. We revise up estimates for PFC/REC by 4-9%. We raise REC's price target to Rs265, (upgrade to ADD from REDUCE); retain ADD on PFC with price target of Rs240.

Source : Equity Bulls

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