PFC, REC, HDB Financial, PNB Housing, Can Fin Homes: Morgan Stanley shares views
Morgan Stanley is positive HDB Financial, PNB Housing Finance and Can Fin Homes, as final regulations on Forms of Business and Prudential Regulationas removes overhang of a forced stake sale by promoters.
- Oct 2, 2025,
- Updated Oct 2, 2025 8:31 AM IST
Global brokerage Morgan Stanley said the Reserve Bank of India’s latest regulatory announcements carry a positive read-through for its coverage stocks, particularly bank-promoted NBFCs and infrastructure financiers namely Can Fin Homes, HDB Financial, PNB Housing Finance, Power Finance Corporation and REC.
The RBI, in its final regulations on Forms of Business and Prudential Regulation for Investments, has decided against imposing restrictions on overlaps in businesses between banks and their group entities. “We think this is positive for bank-promoted NBFCs under our coverage such as HDB Financial, PNB Housing Finance and Can Fin Homes, as it removes any overhang of a forced stake sale by promoters or a change in business mix at the NBFC,” Morgan Stanley noted.
Separately, the central bank has also proposed lowering risk weights on NBFC lending to operational, high-quality infrastructure projects to reduce the cost of financing. While detailed guidelines are awaited, Morgan Stanley believes this will benefit infrastructure lending NBFCs such as Power Finance Corporation (PFC) and REC. “That said, both companies are already well capitalized and self-sustaining businesses,” it added.
Can Fin Homes: Morgan Stanley valued this lender using a residual income model across three phases—five years of high growth, a 10-year maturity phase, and a terminal period—assuming a cost of equity of 12 per cent and terminal growth of 6 per cent. Upside risks include stronger housing credit demand and better margins, while downside risks stem from fraud detection, NIM compression due to liquidity tightening, and asset quality deterioration.
HDB Financial: The brokerage applied a 2.6 times P/B multiple on FY27 estimates, backed by residual income valuation (COE: 12.8 per cent, terminal growth: 6 per cent). Upside risks include faster moderation in credit costs, stronger NIM and cost ratios, and higher loan growth. On the downside, risks include slower NIM improvement, elevated credit costs, and weak loan growth due to asset quality issues.
PNB Housing Finance: Valued on a probability-weighted residual income model (50 per cent base, 45 per cent bear, 5 per cent bull), with COE of 12.5 per cent and terminal growth of 6 per cent, Morgan Stanley said execution risks following senior management exits weigh on multiples. Upside triggers include faster loan growth, NIM expansion, lower borrowing costs and consistent recoveries. Risks include weaker execution, lower loan growth, and weak bad loan recoveries.
Power Finance Corporation: Valued through an SOTP approach with a three-phase residual income model (COE: 13.4 per cent, terminal growth: 6 per cent). The brokerage applied a 20 per cent holding company discount to subsidiaries. Key upside drivers are higher loan growth, stronger recoveries, and lower funding costs, while risks include rising credit costs, slower project execution, and tighter liquidity.
REC Ltd: Also valued using a three-phase residual income model with COE of 13.4 per cent and terminal growth of 6 per cent, implying FY27 P/B of 1.2 times and P/E of 7 times. Upside triggers include faster AUM growth, recoveries, and lower funding costs. Key risks mirror PFC’s—higher credit costs, delayed project execution, and tighter system liquidity.
Global brokerage Morgan Stanley said the Reserve Bank of India’s latest regulatory announcements carry a positive read-through for its coverage stocks, particularly bank-promoted NBFCs and infrastructure financiers namely Can Fin Homes, HDB Financial, PNB Housing Finance, Power Finance Corporation and REC.
The RBI, in its final regulations on Forms of Business and Prudential Regulation for Investments, has decided against imposing restrictions on overlaps in businesses between banks and their group entities. “We think this is positive for bank-promoted NBFCs under our coverage such as HDB Financial, PNB Housing Finance and Can Fin Homes, as it removes any overhang of a forced stake sale by promoters or a change in business mix at the NBFC,” Morgan Stanley noted.
Separately, the central bank has also proposed lowering risk weights on NBFC lending to operational, high-quality infrastructure projects to reduce the cost of financing. While detailed guidelines are awaited, Morgan Stanley believes this will benefit infrastructure lending NBFCs such as Power Finance Corporation (PFC) and REC. “That said, both companies are already well capitalized and self-sustaining businesses,” it added.
Can Fin Homes: Morgan Stanley valued this lender using a residual income model across three phases—five years of high growth, a 10-year maturity phase, and a terminal period—assuming a cost of equity of 12 per cent and terminal growth of 6 per cent. Upside risks include stronger housing credit demand and better margins, while downside risks stem from fraud detection, NIM compression due to liquidity tightening, and asset quality deterioration.
HDB Financial: The brokerage applied a 2.6 times P/B multiple on FY27 estimates, backed by residual income valuation (COE: 12.8 per cent, terminal growth: 6 per cent). Upside risks include faster moderation in credit costs, stronger NIM and cost ratios, and higher loan growth. On the downside, risks include slower NIM improvement, elevated credit costs, and weak loan growth due to asset quality issues.
PNB Housing Finance: Valued on a probability-weighted residual income model (50 per cent base, 45 per cent bear, 5 per cent bull), with COE of 12.5 per cent and terminal growth of 6 per cent, Morgan Stanley said execution risks following senior management exits weigh on multiples. Upside triggers include faster loan growth, NIM expansion, lower borrowing costs and consistent recoveries. Risks include weaker execution, lower loan growth, and weak bad loan recoveries.
Power Finance Corporation: Valued through an SOTP approach with a three-phase residual income model (COE: 13.4 per cent, terminal growth: 6 per cent). The brokerage applied a 20 per cent holding company discount to subsidiaries. Key upside drivers are higher loan growth, stronger recoveries, and lower funding costs, while risks include rising credit costs, slower project execution, and tighter liquidity.
REC Ltd: Also valued using a three-phase residual income model with COE of 13.4 per cent and terminal growth of 6 per cent, implying FY27 P/B of 1.2 times and P/E of 7 times. Upside triggers include faster AUM growth, recoveries, and lower funding costs. Key risks mirror PFC’s—higher credit costs, delayed project execution, and tighter system liquidity.