The proposed PFC & REC Merger marks a significant step in the consolidation of India’s public sector financial institutions. The Ministry of Power has initiated formal steps to examine the merger framework, signaling a major structural shift in the power financing ecosystem.
If executed, the PFC & REC Merger will create a single, large infrastructure financing entity with a massive loan book and strong sectoral presence. This move aligns with the government’s broader strategy of strengthening public sector balance sheets and improving capital efficiency.
PFC & REC Merger: Companies Involved
The merger proposal involves:
- Power Finance Corporation (PFC)
- REC Limited (REC)
The Ministry of Power has formed two separate panels to examine the structure, valuation, and implementation framework of the proposed merger.
Background of the PFC & REC Merger
The foundation of the PFC & REC Merger was laid in 2019 when:
- PFC acquired a 52.63% stake in REC from the Government of India, making REC its subsidiary.
- In the Union Budget 2026, the government proposed consolidation of large public sector financial institutions.
- The Ministry of Power initiated steps toward a full merger to create a unified infrastructure financing powerhouse.
This consolidation is aimed at eliminating overlap, improving operational efficiency, and enhancing lending capacity.
Indicative Swap Ratio in the PFC & REC Merger
As per analyst expectations (USB estimate):
- Approximately 8 PFC shares for every 9 REC shares held, based on current market prices.
The final swap ratio will depend on regulatory approvals and valuation assessments.
Combined Entity: At a Glance
Post the PFC & REC Merger, the combined entity is expected to have:
- Net Worth: Around ₹1.8 lakh crore
- Loan Book: ₹11.5 lakh crore
Sector Mix (Expected Post-Merger)
- 29% Conventional Generation
- 40% Transmission & Distribution
- 14% Renewables
- Remaining: Other Infrastructure
This diversified exposure strengthens the entity’s positioning across India’s evolving energy ecosystem.
Valuation, Book Value & Government Stake After PFC & REC Merger
Key financial expectations:
- PFC share count expected to increase by approximately 34%.
- PFC will continue to remain a government company under the Companies Act, 2013.
- Estimated FY27 Book Value per share: ₹474 (USB estimate).
- Implied valuation: Around 0.88× FY27 Price-to-Book (P/B).
Government Holding Impact
Post-merger, the government’s shareholding in PFC is projected to decline from 56% to approximately 42%. However, it will still retain government company status.
Strategic Implications of the PFC & REC Merger
The PFC & REC Merger could:
- Create scale-driven operational efficiencies
- Strengthen capital allocation
- Improve credit profile and borrowing costs
- Increase institutional investor participation
- Unlock long-term shareholder value
For investors, this merger may act as a structural re-rating trigger depending on execution, swap ratio finalization, and post-merger integration efficiency.
Conclusion
The PFC & REC Merger represents a transformative consolidation in India’s power financing landscape. With a strong balance sheet, diversified sector exposure, and government backing, the merged entity could emerge as a dominant infrastructure lender.
At Beesawa Securities, we continue to monitor developments closely and will provide further updates as clarity emerges on valuation and implementation timelines.
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