REC, PFC Trade 47% Below Graham Number

REC Ltd and Power Finance Corp trade 47.2% below their Graham numbers. That's the headline from FairStock's value screen. [REC Ltd](/stock/RECLTD) closed at ₹335 against a Graham number of ₹662.26. [Power Finance Corp](/stock/PFC) closed at ₹376 against ₹783.23. Both NSE: RECLTD and NSE: PFC sit in the same corner of India's power credit market. The single-digit P/E ratios of 5.51 for REC and 4.76 for PFC are what you'd expect from companies facing a serious credit event, not from lenders to a sector that keeps the lights on. These are not small, obscure firms. REC and PFC are the two largest state-backed lenders to power generation and transmission. They also lend heavily to distribution utilities. They fund the capital cycle that keeps electricity supply ahead of demand. The market is pricing them as if earnings will shrink. That expectation sits oddly with India's power demand growth and the order books of equipment makers. FairStock's data shows the financial institution sector averages a FairStock Score of 66.2. That's a middle-of-the-road signal. It says the sector has value but also carries credit risk. A score above 70 is where FairStock's model tends to flag higher conviction. The Graham number is a static measure: the square root of 22.5 times earnings per share times book value per share. It rewards companies with both earnings power and asset backing. REC and PFC score well because their return on equity has been above 15% in recent years and their book values are high relative to price. The 47.2% margin of safety looks wide because the stocks are unloved. Many value investors want a 30% discount to intrinsic value before buying. At 47%, the discount exceeds that threshold. But the discount exists for a reason: state electricity distribution companies have patchy payment histories. The question is whether that reason is already in the price. From a top-down view, India's power sector is tied to global energy prices. Liquefied natural gas prices and co...